What Are the Parts of an Appraisal?

Their home's purchase is the largest financial decision most people could ever encounter. Whether it's where you raise your family, an additional vacation property or an investment, purchasing real property is an involved transaction that requires multiple people working in concert to pull it all off.

Most people are familiar with the parties having a role in the transaction. The real estate agent is the most familiar person in the transaction. Next, the bank provides the money required to bankroll the exchange. And ensuring all details of the sale 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, who's responsible for making sure the value of the property is consistent 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Appraisal Metrics will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first task at Appraisal Metrics is to inspect the property to ascertain its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are there and are in the shape a reasonable buyer would expect them to be. To make sure the stated square footage has not been misrepresented and describe the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.

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

Replacement Cost

Here, the appraiser uses information on local construction costs, the cost of labor and other elements to determine how much it would cost to replace the property being appraised. This figure usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers become very familiar with the communities in which they work. They thoroughly understand the value of certain features to the people of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject at hand. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

  • If, for example, the comparable has an extra half bath that the subject does not, the appraiser may deduct the value of that half bath 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.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Appraisal Metrics, we are experts when it comes to knowing the value of particular items in Novi and Oakland County neighborhoods. The sales comparison approach to value is usually given the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing a house is sometimes used when a neighborhood has a measurable number of rental properties. In this situation, the amount of revenue the real estate produces is taken into consideration along with income produced by comparable properties to derive the current value.

Reconciliation

Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. Note: While the appraised value is probably the most reliable indication of what a house is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But the appraised value is typically employed 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. The bottom line is, an appraiser from Appraisal Metrics will guarantee you attain the most fair and balanced property value, so you can make profitable real estate decisions.