What Are the Components of an Appraisal?

A home purchase can be the most significant financial decision some people will ever consider. It doesn't matter if a primary residence, a seasonal vacation property or a rental fixer upper, the purchase of real property is an involved transaction that requires multiple people working in concert to see it through.

The majority of the participants are very familiar. The real estate agent is the most recognizable entity in the transaction. Next, the mortgage company provides the money necessary to finance the transaction. And ensuring all details of the sale are completed and that a clear title passes from the seller to the buyer is the title company.

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So, who makes sure the value of the real estate is in line with the purchase price? This is where you meet the appraiser. We provide an unbiased opinion 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 Thomas W. Steinhart will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

Our first responsibility at Thomas W. Steinhart is to inspect the property to determine its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.

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

Cost Approach

Here, the appraiser uses information on local building costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers get to know the communities in which they appraise. They thoroughly understand the value of certain features to the residents 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 at hand. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • For example, if the comparable has an irrigation system and the subject doesn't, the appraiser may subtract the value of an irrigation system from the sales price of the comparable.
  • But, 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.

A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to associating a value with features of homes in Westfield and Hamilton, Thomas W. Steinhart can't be beat. This approach to value is typically awarded the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes used when an area has a reasonable number of rental properties. In this scenario, the amount of revenue the property generates is factored in with other rents in the area for comparable properties to determine the current value.

Arriving at a Value Conclusion

Analyzing the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of a property's valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. But 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. The bottom line is, an appraiser from Thomas W. Steinhart will help you get the most fair and balanced property value, so you can make the most informed real estate decisions.