Understanding the Appraisal Process

Acquiring real estate can be the most serious financial decision some people could ever encounter. It doesn't matter if where you raise your family, a second vacation property or an investment, purchasing real property is an involved transaction that requires multiple parties to see it through.

You're likely to be familiar with the parties taking part in the transaction. The most known face in the exchange is the real estate agent. Next, the bank provides the financial capital required to finance the deal. The title company sees to it that all areas of the transaction are completed and that the title is clear to transfer from the seller to the buyer.

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 makes sure the property is worth the purchase price? This is where you meet 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 Glendon Hensley will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at Glendon Hensley is to inspect the property to determine its true status. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the condition a reasonable person would expect them to be. To make sure the stated size of the property has not been misrepresented and illustrate the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.

Back at the office, 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 we gather information on local building costs, labor rates and other elements to calculate how much it would cost to replace the property being appraised. This value often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers are intimately familiar with the subdivisions in which they appraise. They thoroughly understand the value of specific 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 in question. 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 property.

Say, for example, the comparable has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
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. When it comes to associating a value with features of homes in Elkton and Rockingham, Glendon Hensley is your local authority. This approach to value is most often given the most consideration when an appraisal is for a home sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this scenario, the amount of income the real estate generates is taken into consideration along with income produced by neighboring properties to determine the current value.

Putting It All Together

Combining information from all 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 what's being paid for the property even though it is likely the best indication of what a property is worth. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is typically employed 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 Glendon Hensley will guarantee you get the most fair and balanced property value, so you can make wise real estate decisions.