Real Estate Appraisals: A Primer

Getting a house is the most important transaction many may ever encounter. Whether it's a main residence, a seasonal vacation home or an investment, purchasing real property is a complex transaction that requires multiple parties to make it all happen.

You're probably familiar with the parties having a role in the transaction. The most familiar person in the exchange is the real estate agent. Then, the lender provides the money required to bankroll the exchange. And the title company ensures that all details of the sale are completed and that a clear title transfers to the buyer from the seller.

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

So, who's responsible for making sure the value of the property is in line with the amount being paid? This is where you meet 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 Albertson - Moss Appraisal Group will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain an accurate status of the property, it's our duty to first perform a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the shape a typical person would expect them to be. To make sure the stated size of the property has not been misrepresented 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.

Following 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

This is where the appraiser gathers information on local building costs, labor rates and other elements to calculate how much it would cost to construct a property comparable to the one being appraised. This figure commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers become very familiar with the neighborhoods in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the real estate being appraised. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they more accurately match the features of subject property.

  • For example, if the comparable has a storm shelter and the subject doesn't, the appraiser may subtract the value of a storm shelter 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 an 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 Albertson - Moss Appraisal Group, we are an authority when it comes to knowing the worth of particular items in Richardson and Dallas County neighborhoods. The sales comparison approach to value is usually given 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 - we may use an additional way of valuing real estate. In this case, the amount of revenue the property generates is factored in with income produced by neighboring properties to determine the current value.

The Bottom Line

Examining the data from all approaches, the appraiser is then ready to state an estimated market value for the subject property. It is important to note that while the appraised value is probably the best indication of what a property is worth, it probably will not be the price at which the property closes. Prices 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 employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from Albertson - Moss Appraisal Group will guarantee you attain the most fair and balanced property value, so you can make profitable real estate decisions.