Decoding the Appraisal Process

Buying real estate can be the most important transaction many of us could ever consider. Whether it's a primary residence, a seasonal vacation home or an investment, purchasing real property is a detailed transaction that requires multiple parties to see it through.

Most of the participants are quite familiar. The most known person in the exchange is the real estate agent. Then, the lender provides the money necessary to fund the deal. The title company makes sure that all requirements of the exchange are completed and that the title is clear to pass 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 value of the real estate is in line with the amount being paid? In comes the appraiser. We provide an unbiased estimate 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 Martin Appraisal Service will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first responsibility at Martin Appraisal Service is to inspect the property to ascertain its true status. We must actually see 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 person would expect them to be. To ensure the stated size of the property is accurate and describe the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.

After the inspection, an appraiser uses 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, the cost of labor and other elements to figure out how much it would cost to build a property comparable to the one being appraised. This value often sets the upper limit on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers get to know the communities in which they work. They thoroughly understand the value of particular 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 being appraised. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately match the features of subject.

For example, if the comparable property has a storm shelter and the subject does not, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
However, 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.

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 Martin Appraisal Service, we are an authority when it comes to knowing the worth of particular items in Marshfield and Wood County neighborhoods. This approach to value is most often given the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third way of valuing real estate. In this case, the amount of income the property yields is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Arriving at a Value Conclusion

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the subject property. 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 a property's valueIt'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 employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to put the property on the market again. It all comes down to this, an appraiser from Martin Appraisal Service will help you discover the most accurate property value, so you can make profitable real estate decisions.