What Goes Into an Appraisal?

A home purchase can be the most significant financial decision some people might ever make. Whether it's a main residence, an additional vacation property or an investment, the purchase of real property is an involved financial transaction that requires multiple people working in concert to pull it all off.

It's likely you are familiar with the parties having a role in the transaction. The most recognizable person in the exchange is the real estate agent. Then, the lender provides the financial capital required to fund the deal. And ensuring all requirements of the sale are completed and that a clear title transfers to the buyer from the seller 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, what party makes sure the property is worth the amount being paid? In comes the appraiser. We provide an unbiased opinion 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 Cooper Associates will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To determine the true status of the property, it's our responsibility to first perform a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the house.

Once the site has been inspected, 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

This is where we use information on local building costs, the cost of labor and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value commonly sets the upper limit 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 subdivisions in which they work. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject 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's sales price so that they more accurately match the features of subject property.

For example, if the comparable has a storm shelter and the subject does not, the appraiser may deduct the value of a storm shelter 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 an amount to the comparable property.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Cooper Associates, we are an authority in knowing the worth of real estate features in Picayune and Pearl River County neighborhoods. The sales comparison approach to value is most often awarded 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 a third method of valuing real estate. In this scenario, the amount of revenue the property yields is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. 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. Depending 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 they could recover in the event they had to sell the property again. It all comes down to this, an appraiser from Cooper Associates will guarantee you get the most accurate property value, so you can make profitable real estate decisions.