What Are the Parts of an Appraisal?

Getting a house is the most important financial decision some people may ever consider. Whether it's where you raise your family, a seasonal vacation property or one of many rentals, the purchase of real property is an involved financial transaction that requires multiple parties to make it all happen.

The majority of the parties participating are quite familiar. The most known person in the exchange is the real estate agent. Then, the bank provides the financial capital required to fund the transaction. And ensuring all areas of the transaction are completed and that the title is clear to pass to the buyer from the seller 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 value of the real estate is in line with the amount being paid? In comes the appraiser. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Midtown Appraisals LLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at Midtown Appraisals LLC is to inspect the property to ascertain its true status. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly exist and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the property.

Once the site has been inspected, we use two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

This is where we pull information on local building costs, labor rates and other factors to derive 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. It's also the least used method.

Analyzing Comparable Sales

Appraisers become very familiar with the neighborhoods in which they appraise. They innately understand the value of particular features to the people of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, 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 property has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system from the sales price of the comparable.
If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount 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 Midtown Appraisals LLC, we are an authority when it comes to knowing the worth of real estate features in Grand Rapids and Kent County neighborhoods. The sales comparison approach to value is most often given the most weight when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes used when an area has a measurable number of rental properties. In this case, the amount of revenue the real estate generates is factored in with other rents in the area for comparable properties to determine the current value.

The Bottom Line

Examining the data 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 what's being paid for the property even though it is likely the best indication of a property's valueThere are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Midtown Appraisals LLC will guarantee you get the most fair and balanced property value, so you can make wise real estate decisions.