Decoding the Appraisal Process

A home purchase can be the biggest transaction many of us may ever consider. It doesn't matter if a primary residence, a seasonal vacation property or an investment, purchasing real property is a complex transaction that requires multiple people working in concert 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 known face in the exchange. Next, the bank provides the money required to bankroll the exchange. And the title company makes sure that all areas of the exchange are completed and that the title is clear to transfer to the buyer from the seller.

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So, who's responsible for making sure the value of the property is consistent with the purchase price? This is where you meet 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 Day Appraisal Company, Inc. will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at Day Appraisal Company, Inc. is to inspect the property to ascertain its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly exist and are in the shape a reasonable person would expect them to be. To ensure the stated square footage has not been misrepresented and document the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.

Back at the office, an appraiser uses two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, the appraiser gathers information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers can tell you a lot about the neighborhoods in which they appraise. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the property being appraised. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately match the features of subject.

For example, if the comparable property has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
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.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to associating a value with features of homes in Rochester and Olmsted, Day Appraisal Company, Inc. can't be beat. The sales comparison approach to value is most often given the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third way of valuing a property is sometimes employed when an area has a measurable number of rental properties. In this situation, the amount of revenue the real estate yields is factored in with income produced by similar properties to derive the current value.

Coming Up With The Final Value

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While the appraised value is probably the most reliable indication of what a house 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 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. The bottom line is, an appraiser from Day Appraisal Company, Inc. will guarantee you attain the most fair and balanced property value, so you can make wise real estate decisions.