What Are the Components of an Appraisal?

A home purchase is the most important investment most may ever encounter. Whether it's a main residence, a second vacation property or an investment, purchasing real property is a detailed financial transaction that requires multiple people working in concert to make it all happen.

It's likely you are familiar with the parties taking part in the transaction. The most recognizable person in the exchange is the real estate agent. Next, the mortgage company provides the financial capital needed to finance the transaction. The title company ensures that all areas of the transaction are completed and that the title is clear to pass from the seller to the buyer.

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So, who makes sure the value of the real estate is consistent with the amount being paid? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Carroll & Carroll Appraisers & Consultants will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first responsibility at Carroll & Carroll Appraisers & Consultants is to inspect the property to ascertain its true status. We must see aspects of the property first hand, 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 buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the property.

After the inspection, 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 the appraiser pulls information on local construction costs, the cost of labor and other factors to calculate how much it would cost to replace the property being appraised. This figure commonly sets the maximum on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers get to know the communities in which they work. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser looks up recent sales in the neighborhood and finds properties which are 'comparable' to the property at hand. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject.

For example, if the comparable 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.
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.

An opinion 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 valuing features of homes in Naples and Collier, Carroll & Carroll Appraisers & Consultants is your local authority. The sales comparison approach to value is most often given the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing a property is sometimes applied when an area has a measurable number of rental properties. In this situation, the amount of revenue the real estate generates is taken into consideration along with other rents in the area for comparable properties to derive 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 subject property. 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 valueIt'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'. Regardless, 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. The bottom line is, an appraiser from Carroll & Carroll Appraisers & Consultants will guarantee you get the most fair and balanced property value, so you can make wise real estate decisions.