What Goes Into an Appraisal?

Getting a house is the most important transaction some might ever consider. It doesn't matter if where you raise your family, a seasonal vacation property or a rental fixer upper, purchasing real property is a complex financial transaction that requires multiple parties to see it through.

The majority of the people participating are quite familiar. The most known entity in the transaction is the real estate agent. Then, the lender provides the financial capital required to finance the deal. The title company ensures that all areas of the sale are completed and that the title is clear to transfer to the buyer from the seller.

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 property is worth the purchase price? This is where you meet the appraiser. We provide an unbiased estimate 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 MW Valuation will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

Our first responsibility at MW Valuation 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 truly are present and are in the condition a typical 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, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

Once the site has been inspected, we use two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

This is where the appraiser pulls information on local construction costs, labor rates and other factors to figure out how much it would cost to construct 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.

Sales Comparison

Appraisers get to know the neighborhoods in which they appraise. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property in question. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • Say, for example, the comparable has a fireplace and the subject doesn't, the appraiser may subtract the value of a fireplace 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 could sell for can only be determined once all differences between the comps and the subject have been evaluated. At MW Valuation, we are an authority when it comes to knowing the value of particular items in Santa Rosa and Sonoma County neighborhoods. 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 applied when an area has a measurable number of rental properties. In this scenario, the amount of revenue the real estate generates is factored in with other rents in the area for comparable properties to determine the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valueDepending on the specific circumstances 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 employed 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 MW Valuation will help you get the most fair and balanced property value, so you can make the most informed real estate decisions.