What Goes Into an Appraisal?

Buying a home is the most significant transaction many people might ever make. It doesn't matter if where you raise your family, a second vacation property or a rental fixer upper, purchasing real property is a detailed financial transaction that requires multiple people working in concert to make it all happen.

Practically all the participants are very familiar. The most known person in the transaction is the real estate agent. Next, the mortgage company provides the financial capital required to fund the transaction. And ensuring all details of the sale are completed and that a clear title transfers to the buyer from the seller is the title company.

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So, who makes sure the value of the property is in line with the purchase price? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer could 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 Mike Marshall & Associates will ensure, you as an interested party, are informed.

Appraisals start with the inspection

To determine an accurate status of the property, it's our duty to first conduct a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the condition a reasonable buyer would expect them to be. To ensure the stated size of the property has not been misrepresented and document the layout of the home, 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.

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

Cost Approach

This is where we analyze information on local construction costs, the cost of labor and other factors to derive how much it would cost to replace the property being appraised. This estimate commonly 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 neighborhoods in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the home at hand. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject.

For example, if the comparable has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system 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.

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 Mike Marshall & Associates, we are experts in knowing the value of particular items in MIDLOTHIAN and Ellis County neighborhoods. This approach to value is most often given the most consideration when an appraisal is for a home sale.

Valuation Using the Income Approach

A third method of valuing a house is sometimes employed when a neighborhood has a measurable number of rental properties. In this situation, the amount of revenue the property generates is factored in with other rents in the area for comparable properties to determine the current value.

Putting It All Together

Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the property in question. 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 what a property is worth. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. At the end of the day, an appraiser from Mike Marshall & Associates will guarantee you attain the most fair and balanced property value, so you can make the most informed real estate decisions.