Understanding Appraisals

Purchasing a house can be the biggest transaction most of us may ever consider. Whether it's where you raise your family, an additional vacation property or a rental fixer upper, purchasing real property is an involved financial transaction that requires multiple parties to pull it all off.

The majority of the participants are very familiar. The real estate agent is the most recognizable face in the exchange. Next, the mortgage company provides the financial capital needed to bankroll the exchange. And ensuring all details of the exchange are completed and that the title is clear to pass from the seller to the buyer 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 purchase price? 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from A & B Tax Service will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain the true status of the property, it's our duty to first complete a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly exist and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the house.

Back at the office, an appraiser uses two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

Here, we pull information on local building costs, the cost of labor and other factors to derive how much it would cost to build a property nearly identical to the one being appraised. This estimate often sets the maximum on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers get to know the neighborhoods in which they appraise. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the real estate at hand. 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.

  • For example, if the comparable has a storm shelter and the subject doesn't, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At A & B Tax Service, we are experts when it comes to knowing the value of real estate features in Sturtevant and Racine County neighborhoods. This approach to value is usually awarded the most consideration when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional way of valuing real estate. In this case, the amount of income the real estate produces is factored in with income produced by nearby properties to give an indicator of the current value.

Putting It All Together

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of a property's valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. 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 the event they had to put the property on the market again. It all comes down to this, an appraiser from A & B Tax Service will help you attain the most fair and balanced property value, so you can make wise real estate decisions.