What Are the Parts of an Appraisal?

Purchasing real estate is the biggest financial decision many people could ever make. Whether it's a main residence, a seasonal vacation home or a rental fixer upper, purchasing real property is an involved transaction that requires multiple parties to make it all happen.

Most people are familiar with the parties having a role in the transaction. The real estate agent is the most familiar face in the exchange. Next, the mortgage company provides the financial capital required to finance the transaction. The title company makes sure that all areas of the transaction are completed and that a clear title passes to the buyer from the seller.

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So, what party is responsible for making sure the value of the real estate is in line with the purchase price? 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Appraisals By Trautman will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first duty at Appraisals By Trautman is to inspect the property to ascertain its true status. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there and are in the shape a typical buyer would expect them to be. To make sure the stated square footage is accurate and convey the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the house.

Back at the office, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

This is where the appraiser gathers information on local building costs, the cost of labor and other elements to determine how much it would cost to build a property similar to the one being appraised. This value usually sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers are intimately familiar with the subdivisions in which they appraise. They thoroughly understand the value of certain features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they more accurately portray the features of subject property.

  • For example, if the comparable has a storm shelter and the subject does not, the appraiser may deduct the value of a storm shelter 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.

An opinion of what the subject might 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 Champaign and Champaign, Appraisals By Trautman can't be beat. This approach to value is usually awarded the most consideration when an appraisal is for a home sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional method of valuing a house. In this case, the amount of revenue the property yields is factored in with income produced by comparable properties to derive the current value.

Coming Up With The Final Value

Examining the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. Note: While the appraised value is probably the most accurate indication of what a property is worth, it may not be the price at which the property closes. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But the appraised value is typically used 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 Appraisals By Trautman will guarantee you discover the most accurate property value, so you can make the most informed real estate decisions.