Real Property Appraisals: A Primer

Their home's purchase can be the largest investment some of us will ever consider. Whether it's where you raise your family, a seasonal vacation home or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple people working in concert to see it through.

It's likely you are familiar with the parties taking part in the transaction. The most familiar face in the exchange is the real estate agent. Next, the bank provides the financial capital required to fund the transaction. And ensuring all areas of the exchange are completed and that a clear title passes from the seller to the purchaser 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 value of the property is consistent with the amount being paid? In comes 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 Christopher Harr will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To determine an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly exist and are in the shape a typical person would expect them to be. To make sure the stated square footage is accurate and convey the layout of the home, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would have an impact on 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.

Replacement Cost

Here, the appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to replace the property being appraised. This estimate usually sets the upper limit on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers can tell you a lot about the neighborhoods in which they work. They innately understand the value of particular features to the people of that area. Then, the appraiser looks up recent sales in the vicinity and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of 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 match the features of subject property.

For example, if the comparable 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.
If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an 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. At Christopher Harr, we are an authority in knowing the value of particular items in Sunset Beach and Orange County neighborhoods. This approach to value is commonly awarded the most weight when an appraisal is for a real estate sale.

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 situation, the amount of income the property yields is factored in with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. It is important to note that while this amount is probably the most accurate indication of what a house is worth, it probably will not be the final sales price. 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 put the property on the market again. It all comes down to this, an appraiser from Christopher Harr will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.