What Goes Into an Appraisal?

Purchasing a house is the most serious transaction many of us could ever encounter. It doesn't matter if a main residence, a seasonal vacation home or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple people working in concert to pull it all off.

Most of the participants are quite familiar. The real estate agent is the most known entity in the exchange. Then, the bank provides the money required to bankroll the deal. And the title company ensures that all areas of the exchange are completed and that the title is clear to pass from the seller to the buyer.

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

So, what party makes sure the value of the property is consistent with the purchase price? This is where the appraiser comes in. We provide an unbiased estimate 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 MVP Appraisal Group will ensure, you as an interested party, are informed.

Appraisals start with the property inspection

To ascertain the true 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, living areas, etc, to ensure they indeed are present and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and conveying the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

Here, we analyze information on local building costs, labor rates and other factors to calculate how much it would cost to replace the property being appraised. This value often sets the upper limit on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers are intimately familiar with the neighborhoods in which they appraise. They innately understand the value of certain features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject 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 adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • Say, for example, the comparable property has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable home.
  • If the subject 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. When it comes to putting a value on features of homes in Saint Charles and Saint Charles, MVP Appraisal Group is your local authority. This approach to value is typically awarded the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional method of valuing a property. In this case, the amount of income the real estate yields is taken into consideration along with income produced by similar properties to give an indicator of the current value.

The Bottom Line

Examining the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. 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 often 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. Here's what it all boils down to, an appraiser from MVP Appraisal Group will guarantee you discover the most fair and balanced property value, so you can make wise real estate decisions.