What Goes Into an Appraisal?

Their home's purchase can be the biggest transaction many of us may ever make. Whether it's where you raise your family, an additional vacation property or an investment, purchasing real property is an involved transaction that requires multiple people working in concert to see it through.

The majority of the participants are quite familiar. The most known person in the exchange is the real estate agent. Then, the lender provides the money needed to fund the transaction. And the title company sees to it that all areas of the exchange are completed and that the title is clear to pass 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, who makes sure the value of the property is consistent with the amount being paid? In comes the appraiser. We provide an unbiased opinion 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 Johnson Valuation Services will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

To ascertain the true status of the property, it's our duty to first perform a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are present and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the house.

Once the site has been inspected, we use two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where we gather information on local construction costs, labor rates and other elements to determine how much it would cost to build a property nearly identical to the one being appraised. This estimate usually sets the maximum on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers get to know the communities in which they appraise. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately portray the features of subject property.

  • Say, for example, the comparable property has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
  • If the subject property 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. When it comes to putting a value on features of homes in Oroville and Butte, Johnson Valuation Services is second to none. The sales comparison approach to value is usually given the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes employed when an area has a reasonable number of renter occupied properties. In this situation, the amount of revenue the property produces is taken into consideration along with income produced by comparable properties to determine the current value.

Reconciliation

Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. 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.But the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to sell the property again. The bottom line is, an appraiser from Johnson Valuation Services will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.