What Are the Parts of an Appraisal?

A home purchase can be the largest financial decision most of us will ever consider. Whether it's a main residence, a second vacation property or one of many rentals, purchasing real property is a detailed financial transaction that requires multiple parties to pull it all off.

Most of the people involved are very familiar. The real estate agent is the most familiar person in the exchange. Next, the bank provides the financial capital necessary to fund the deal. The title company sees to it that all requirements of the transaction are completed and that the title is clear to pass to the buyer from the seller.

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So, what party is responsible for making sure the real estate is worth the amount being paid? 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 Terry Camp Jr. will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first task at Terry Camp Jr. is to inspect the property to determine its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.

Following the inspection, we use two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

This is where we pull information on local construction costs, the cost of labor and other factors to calculate how much it would cost to replace the property being appraised. This estimate commonly sets the upper limit 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 subdivisions in which they appraise. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the property at hand. Using knowledge of the value of 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 match the features of subject property.

For example, if the comparable property has an irrigation system and the subject doesn't, the appraiser may deduct the value of an irrigation system from the sales price of the comparable.
But, 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 could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to putting a value on features of homes in Elkhart and Anderson, Terry Camp Jr. is second to none. The sales comparison approach to value is usually given the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third method of valuing a property is sometimes used when a neighborhood has a measurable number of rental properties. In this case, the amount of revenue the property produces is factored in with income produced by similar properties to determine the current value.

Reconciliation

Examining the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. It is important to note that while the appraised value is probably the best indication of what a house is worth, it may not be the final sales price. 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 get back in case they had to put the property on the market again. It all comes down to this, an appraiser from Terry Camp Jr. will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.