What Are the Components of an Appraisal?

Getting a house is the biggest transaction some might 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 detailed financial transaction that requires multiple parties to pull it all off.

You're likely to be familiar with the parties having a role in the transaction. The most known entity in the exchange is the real estate agent. Next, the bank provides the money needed to fund the transaction. And the title company ensures that all requirements of the sale are completed and that a clear title transfers 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, what party makes sure the property is worth the amount being paid? 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 Sciara Appraisals will ensure, you as an interested party, are informed.

Appraisals start with the property inspection

Our first responsibility at Sciara Appraisals is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are there and are in the shape a reasonable person 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 entails creating a sketch of the floorplan. 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 real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, the appraiser analyzes information on local building costs, labor rates and other factors to figure out how much it would cost to replace the property being appraised. This value usually sets the maximum on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers are intimately familiar with the neighborhoods in which they appraise. They innately understand the value of certain features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

  • If, for example, the comparable has an irrigation system and the subject doesn't, the appraiser may deduct the value of an irrigation system from the sales price of the comparable.
  • 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 could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Sciara Appraisals, we are experts when it comes to knowing the value of real estate features in LEES SUMMIT and Jackson County neighborhoods. The sales comparison approach to value is typically awarded the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes used when an area has a reasonable number of rental properties. In this case, the amount of revenue the property yields is taken into consideration along with income produced by nearby properties to give an indicator of the current value.

The Bottom Line

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. 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. 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 employed 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 Sciara Appraisals will guarantee you discover the most fair and balanced property value, so you can make wise real estate decisions.