Understanding Appraisals

Acquiring a home can be the largest investment many may ever consider. 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.

You're probably familiar with the parties having a role in the transaction. The real estate agent is the most known person in the exchange. Then, the bank provides the money required to fund the exchange. The title company sees to it that all areas 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, who's responsible for making sure the real estate is worth the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Donnie Gilbert Appraisals will ensure, you as an interested party, are informed.

The observation is where an appraisal starts

Our first duty at Donnie Gilbert Appraisals is to observe the property to ascertain its true status. However, we are not home inspectors and are not providing a home inspection report. Please contact a qualified home inspector for accurate defects and conditions of your home. We must observe aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, materials, etc., to ensure they really are there and are in the condition a typical person would expect them to be. To ensure 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, we identify any obvious amenities - or defects - that would affect the value of the property.

Following the observation, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

Here, we use information on local building costs, the cost of labor and other elements to figure out how much it would cost to construct a property nearly identical to the one being appraised. This value usually sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Analyzing Comparable Sales

Appraisers become very familiar with the neighborhoods in which they work. They innately understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable sales price so that they are more accurately in line with the features of subject property.

  • For example, if the comparable property has an extra half bath that the subject does not, the appraiser may subtract the value of that half bath from the sales price of the comparable home.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. Thus, the sales comparison approach to value is usually given the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

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

The Bottom Line

Examining the data from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. It is important to note that while the appraised value is probably the best indication of what a house is worth, it probably will not be the final sales price. Depending on the specific 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 employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to put the property on the market again. At the end of the day, an appraiser from Donnie Gilbert Appraisals will help you get the most accurate property value, so you can make the most informed real estate decisions.