An Overview of the Appraisal Process

Getting real estate can be the largest transaction some will ever make. It doesn't matter if a primary residence, an additional vacation property 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 taking part in the transaction. The most familiar entity in the exchange is the real estate agent. Next, the bank provides the money required to bankroll the exchange. And the title company ensures that all requirements of the exchange are completed and that a clear title passes 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 property is worth the purchase price? This is where you meet 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 Andrews Appraisals will ensure, you as an interested party, are informed.

Inspecting the subject property

To determine the true status of the property, it's our responsibility to first perform a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are present and are in the condition a typical person would expect them to be. To ensure the stated square footage has not been misrepresented and convey the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the property.

Back at the office, we use two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where the appraiser pulls information on local building costs, the cost of labor and other elements to derive how much it would cost to build a property similar to the one being appraised. This value commonly sets the maximum 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 neighborhoods in which they work. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the property being appraised. 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 adjust the comparable properties so that they more accurately portray the features of subject property.

  • For example, if the comparable has an extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath from the sales price of the comparable.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an 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. When it comes to valuing features of homes in Devils Lake and Ramsey, Andrews Appraisals is your local authority. This approach to value is most often awarded the most weight when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes applied when an area has a reasonable number of rental properties. In this scenario, the amount of income the real estate generates is taken into consideration along with other rents in the area for comparable properties to derive the current value.

The Bottom Line

Examining the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valueDepending on the individual situations 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.Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Andrews Appraisals will guarantee you attain the most accurate property value, so you can make wise real estate decisions.