What Are the Parts of an Appraisal?

Purchasing real estate can be the largest transaction some will ever make. It doesn't matter if a main residence, a seasonal vacation property or one of many rentals, purchasing real property is a complex transaction that requires multiple people working in concert to see it through.

It's likely you are familiar with the parties having a role in the transaction. The most known person in the exchange is the real estate agent. Then, the lender provides the money needed to finance the exchange. And ensuring all details of the sale 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, who makes sure the real estate is worth the purchase price? This is where the appraiser comes in. 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 Ron Carty Appraisal will ensure, you as an interested party, are informed.

Appraisals begin with the home inspection

To determine an accurate status of the property, it's our duty to first conduct a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are present and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

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

Replacement Cost

This is where we analyze information on local building costs, labor rates and other elements to figure out how much it would cost to construct a property comparable to the one being appraised. This estimate usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers get to know the communities in which they work. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent sales in the vicinity 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.

  • Say, for example, the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Ron Carty Appraisal, we are experts in knowing the worth of real estate features in Kane and McKean County neighborhoods. The sales comparison approach to value is most often awarded the most consideration 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 - the appraiser may use an additional way of valuing real estate. In this scenario, the amount of income the real estate yields is taken into consideration along with income produced by neighboring properties to determine the current value.

Putting It All Together

Combining information from all approaches, the appraiser is then ready to state an estimated market value for the subject property. The estimate of value on the appraisal report is not always what's being paid for the property 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 typically used as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to sell the property again. Here's what it all boils down to, an appraiser from Ron Carty Appraisal will guarantee you get the most accurate property value, so you can make wise real estate decisions.