A Description of the Appraisal Process

Their home's purchase is the largest investment some people might ever encounter. Whether it's a main residence, an additional vacation property or one of many rentals, the purchase of real property is a complex transaction that requires multiple parties to make it all happen.

The majority of the participants are quite familiar. The most known person in the transaction is the real estate agent. Next, the mortgage company provides the money required to fund the transaction. And ensuring all areas of the exchange are completed and that a clear title transfers from the seller to the buyer is the title company.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, what party makes sure the real estate is worth the amount being paid? In comes the appraiser. We provide an unbiased opinion of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Alliance Appraisal, Inc. will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

To determine an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must actually view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed exist and are in the shape a reasonable person would expect them to be. To make sure the stated square footage has not been misrepresented and document the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.

Back at the office, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where the appraiser gathers information on local building costs, the cost of labor and other factors to calculate how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers can tell you a lot about the communities in which they work. They thoroughly understand the value of certain features to the people of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the home being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

  • For example, if the comparable has an extra half bath that the subject does not, the appraiser may deduct the value of that half bath from the sales price of the comparable.
  • However, in the case where the subject has something such as an extra half bath that a comparable doesn't have, the appraiser might add the value of that bath to the comparable property.

A valid estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to knowing the true value of features of homes in Clifton and Fairfax, Alliance Appraisal, Inc. is your local authority. The sales comparison approach to value is most often given the most weight when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third way of valuing a house. In this scenario, the amount of revenue the real estate generates is factored in with income produced by similar properties to derive the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. At the end of the day, an appraiser from Alliance Appraisal, Inc. will help you get the most fair and balanced property value, so you can make profitable real estate decisions.