Real Property Appraisals: A Primer

Their home's purchase can be the biggest transaction some people might ever consider. Whether it's a main residence, a seasonal vacation property or one of many rentals, purchasing real property is an involved transaction that requires multiple people working in concert to see it through.

The majority of the participants are very familiar. The most familiar person in the transaction is the real estate agent. Then, the mortgage company provides the money required to fund the transaction. And ensuring all requirements of the exchange are completed and that a clear title transfers from the seller to the purchaser is the title company.

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

So, who makes sure the property is worth the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer might 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 Swan Real Estate and Appraisals LLC 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 conduct a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the shape a reasonable buyer would expect them to be. To make sure the stated square footage is accurate and illustrate 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 property.

Next, after the inspection, an appraiser uses 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

This is where the appraiser gathers information on local building costs, labor rates and other elements to figure out how much it would cost to replace the property being appraised. This figure usually sets the upper limit on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers become very familiar with the subdivisions in which they appraise. They innately understand the value of specific features to the residents of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of 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 are more accurately in line with the features of subject property.

If, for example, the comparable property has an irrigation system and the subject doesn't, the appraiser may subtract 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.

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. At Swan Real Estate and Appraisals LLC, we are an authority in knowing the worth of particular items in Raymond and Cumberland County neighborhoods. The sales comparison approach to value is typically awarded the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes used when an area has a reasonable number of rental properties. In this scenario, the amount of revenue the real estate produces is factored in with income produced by similar properties to give an indicator of the current value.

Arriving at a Value Conclusion

Examining the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. It is important to note that while the appraised value is probably the most accurate indication of what a property is worth, it probably will not be the price at which the property closes. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. At the end of the day, an appraiser from Swan Real Estate and Appraisals LLC will guarantee you get the most fair and balanced property value, so you can make wise real estate decisions.