Decoding the Appraisal Process

Getting a home is the most important financial decision most people will ever make. It doesn't matter if a main residence, an additional vacation property or one of many rentals, purchasing real property is a detailed transaction that requires multiple parties to make it all happen.

Most of the people involved are very familiar. The real estate agent is the most recognizable entity in the exchange. Then, the lender provides the financial capital required to fund the deal. The title company makes sure that all areas of the transaction are completed and that a clear title transfers to the buyer from the seller.

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So, who's responsible for making sure the value of the property is in line with the purchase price? In comes the appraiser. We provide an unbiased estimate 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 Anderson Appraisal Services will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first duty at Anderson Appraisal Services is to inspect the property to determine its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are there and are in the shape a typical buyer 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, we identify any obvious amenities - or defects - that would have an impact on the value of the house.

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

Here, the appraiser uses information on local construction costs, the cost of labor and other elements to determine how much it would cost to replace the property being appraised. This figure usually sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers are intimately familiar with the neighborhoods in which they appraise. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

Say, for example, the comparable has an extra half bath that the subject does not, the appraiser may subtract the value of that half bath 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.

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 Anderson Appraisal Services, we are an authority when it comes to knowing the worth of particular items in Louisville and Jefferson County neighborhoods. The sales comparison approach to value is typically awarded the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes applied when an area has a reasonable number of renter occupied properties. In this case, the amount of revenue the property produces is factored in with other rents in the area for comparable properties to derive the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. 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 a property's valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. Regardless, 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. Here's what it all boils down to, an appraiser from Anderson Appraisal Services will help you get the most fair and balanced property value, so you can make wise real estate decisions.