What Are the Components of an Appraisal?

A home purchase can be the most important transaction some might ever consider. Whether it's where you raise your family, a second vacation home or a rental fixer upper, purchasing real property is a detailed transaction that requires multiple parties to see it through.

It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most recognizable person in the exchange. Then, the lender provides the money needed to bankroll the exchange. The title company makes sure that all areas of the exchange are completed and that a clear title transfers from the seller to the purchaser.

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So, who's responsible for making 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from a la mode will ensure, you as an interested party, are informed.

Appraisals start with the property inspection

Our first responsibility at a la mode is to inspect the property to determine its true status. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are there and are in the shape a typical person would expect them to be. To make sure the stated square footage has not been misrepresented and convey the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser looks for 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 the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, the appraiser analyzes information on local construction costs, the cost of labor and other factors to calculate how much it would cost to build a property similar to the one being appraised. This figure usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers get to know the subdivisions in which they work. They thoroughly understand the value of specific features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

For example, if the comparable has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
However, 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 knowing the true worth of features of homes in Tooele and Tooele, a la mode can't be beat. The sales comparison approach to value is commonly awarded the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third method of valuing a house. In this scenario, the amount of income the property generates is factored in with income produced by similar properties to determine the current value.

Putting It All Together

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While this amount is probably the most accurate indication of what a property is worth, it probably will not be the price at which the property closes. 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 often used 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 put the property on the market again. At the end of the day, an appraiser from a la mode will guarantee you discover the most fair and balanced property value, so you can make the most informed real estate decisions.