What Goes Into an Appraisal?

A home purchase is the most serious investment many will ever consider. Whether it's where you raise your family, a second vacation property or one of many rentals, purchasing real property is a detailed transaction that requires multiple people working in concert to see it through.

The majority of the participants are quite familiar. The real estate agent is the most recognizable person in the transaction. Then, the bank provides the financial capital needed to finance the deal. And ensuring all details of the transaction are completed and that the title is clear to transfer to the buyer from the seller 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, what party makes sure the value of the real estate is consistent with the amount being paid? In comes the appraiser. We provide an unbiased opinion of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Johnson Realty and Appraisal Co. will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at Johnson Realty and Appraisal Co. is to inspect the property to ascertain its true status. We must actually view features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are present and are in the shape a typical buyer would expect them to be. To make sure the stated square footage has not been misrepresented and document the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.

Back at the office, we use 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, the appraiser pulls information on local construction costs, the cost of labor and other factors to figure out how much it would cost to replace the property being appraised. This estimate commonly sets the maximum on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers get to know the subdivisions in which they work. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the real estate in question. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they more accurately portray the features of subject.

For example, if the comparable property has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace 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.

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. At Johnson Realty and Appraisal Co., we are experts in knowing the value of particular items in Warren and Warren County neighborhoods. This approach to value is typically given the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes used when an area has a measurable number of rental properties. In this situation, the amount of income the property generates is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Analyzing the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the subject property. Note: While the appraised value is probably the most accurate indication of what a house 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. But the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to put the property on the market again. Here's what it all boils down to, an appraiser from Johnson Realty and Appraisal Co. will help you attain the most fair and balanced property value, so you can make wise real estate decisions.