Comprehending Appraisals

Their home's purchase is the most significant financial decision some people will ever consider. It doesn't matter if a main residence, an additional vacation property or an investment, the purchase of real property is an involved financial transaction that requires multiple parties to see it through.

The majority of the participants are very familiar. The real estate agent is the most known face in the exchange. Then, the bank provides the financial capital necessary to fund the deal. And the title company ensures that all areas of the exchange are completed and that a clear title transfers from the seller to the purchaser.

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 is responsible for making sure the value of the real estate is consistent with the amount being paid? This is where you meet the appraiser. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a parcel of real estate, 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.

Inspecting the subject property

To ascertain an accurate status of the property, it's our duty to first complete a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really exist and are in the condition a reasonable person would expect them to be. To make sure the stated size of the property is accurate and document the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.

After the inspection, 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.

Replacement Cost

Here, the appraiser pulls information on local construction costs, the cost of labor and other factors to ascertain how much it would cost to replace the property being appraised. This value commonly sets the maximum on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers are intimately familiar with the neighborhoods in which they appraise. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the home at hand. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.

For example, if the comparable property has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
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.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Alliance Appraisal, Inc., we are experts when it comes to knowing the value of particular items in Clifton and Fairfax County neighborhoods. The sales comparison approach to value is usually given the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

A third method of valuing a house is sometimes applied when a neighborhood has a reasonable number of rental properties. In this scenario, the amount of income the property produces is factored in with other rents in the area for comparable properties to derive the current value.

Putting It All Together

Examining the data from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valuePrices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to sell the property again. The bottom line is, an appraiser from Alliance Appraisal, Inc. will guarantee you get the most accurate property value, so you can make the most informed real estate decisions.