Understanding the Appraisal Process

A home purchase is the most significant financial decision most of us will ever encounter. It doesn't matter if where you raise your family, a second vacation home or one of many rentals, purchasing real property is a detailed transaction that requires multiple parties to make it all happen.

Practically all the participants are very familiar. The real estate agent is the most recognizable entity in the exchange. Then, the lender provides the money needed to finance the transaction. And ensuring all areas of the exchange are completed and that the title is clear to pass to the buyer from the seller is the title company.

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So, who's responsible for making sure the real estate is worth the purchase price? 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 Delta Appraisal 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 conduct a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the condition a reasonable person 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, we look for any obvious features - or defects - that would affect the value of the property.

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

Cost Approach

Here, we gather information on local construction costs, the cost of labor and other factors to calculate how much it would cost to construct a property similar to the one being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers are intimately familiar with the communities in which they work. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional 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 does not, the appraiser may deduct the value of an irrigation system from the sales price of the comparable.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Delta Appraisal, we are experts when it comes to knowing the worth of real estate features in Crossville and Cumberland County neighborhoods. This approach to value is most often awarded the most consideration when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes applied when a neighborhood has a reasonable number of renter occupied properties. In this scenario, the amount of income the property produces is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Reconciliation

Examining the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the subject property. The estimate of value on the appraisal report is not always what's being paid for the property 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'. But the appraised value is often used 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 Delta Appraisal will help you attain the most accurate property value, so you can make the most informed real estate decisions.