Real Estate Appraisals: A Primer

Their home's purchase is the most important financial decision many of us may ever make. Whether it's a primary residence, an additional vacation home or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple parties to make it all happen.

It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most familiar face in the exchange. Next, the lender provides the money required to finance the transaction. And the title company makes sure that all details of the transaction are completed and that the title is clear to transfer to the buyer from the seller.

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 is responsible for making sure the real estate is worth 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 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.

Appraisals start with the property inspection

Our first duty at A & B Tax Service is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is correct and conveying the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the property.

Once the site has been inspected, we use two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

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

Sales Comparison

Appraisers can tell you a lot about the communities in which they work. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent transactions in the neighborhood and finds properties which are 'comparable' to the home in question. Using knowledge of the value of certain items such as square footage, additional 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 property.

  • For example, if 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.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

A true estimate of what the subject could 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 worth of real estate features in Sturtevant and Racine County neighborhoods. The sales comparison approach to value is usually given the most weight when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing a house is sometimes applied when an area has a measurable number of renter occupied properties. In this situation, the amount of revenue the real estate produces is taken into consideration along with income produced by nearby properties to derive the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to put down an estimated market value for the property in question. It is important to note that while this amount is probably the most reliable indication of what a property is worth, it probably will not be the final sales price. Depending on the specific circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven 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 get back in case they had to put the property on the market again. The bottom line is, an appraiser from A & B Tax Service will guarantee you get the most accurate property value, so you can make wise real estate decisions.