Comprehending Appraisals

Purchasing a house is the most serious transaction some of us will ever consider. Whether it's where you raise your family, a seasonal vacation property or an investment, purchasing real property is an involved transaction that requires multiple people working in concert to make it all happen.

Most people are familiar with the parties taking part in the transaction. The real estate agent is the most known entity in the exchange. Then, the lender provides the financial capital necessary to bankroll the deal. The title company ensures that all requirements of the transaction are completed and that a clear title transfers from the seller to the purchaser.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, who's responsible for making sure the value of the property is in line with the purchase price? This is where the appraiser comes in. We provide an unbiased opinion 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 Barri Riley will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the shape a reasonable person would expect them to be. To make sure the stated size of the property is accurate and describe the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the property.

Back at the office, an appraiser uses 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, we analyze information on local construction 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. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers are intimately familiar with the neighborhoods in which they work. They innately understand the value of certain features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate being appraised. 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 add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • If, for example, the comparable has an irrigation system and the subject does not, 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.

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. When it comes to knowing the true value of features of homes in HUNTINGDON VALLEY and Montgomery, Barri Riley is your local authority. The sales comparison approach to value is commonly given the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes applied when a neighborhood has a reasonable number of rental properties. In this scenario, the amount of revenue the real estate yields is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Examining the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While the appraised value is probably the most accurate indication of what a property is worth, it may not be the price at which the property closes. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing 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 get back in case they had to put the property on the market again. Here's what it all boils down to, an appraiser from Barri Riley will guarantee you discover the most accurate property value, so you can make wise real estate decisions.