What Are the Parts of an Appraisal?

Acquiring real estate is the most serious financial decision most of us may ever encounter. It doesn't matter if a primary residence, a second vacation property or an investment, purchasing real property is a complex financial transaction that requires multiple people working in concert to pull it all off.

Practically all the participants are quite familiar. The most familiar face in the exchange is the real estate agent. Then, the mortgage company provides the money needed to fund the exchange. The title company sees to it that all details 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's responsible for making sure the value of the property is consistent with the purchase price? In comes the appraiser. We provide an unbiased estimate 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 Shelley Appraisal Company will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

Our first task at Shelley Appraisal Company is to inspect the property to determine its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are there and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the house.

Following the inspection, we use 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

This is where the appraiser pulls information on local building costs, the cost of labor and other elements to derive how much it would cost to build a property comparable to the one being appraised. This value 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 communities in which they work. They innately understand the value of particular 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. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional 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 subtract the value of a storm shelter from the sales price of the comparable.
However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount 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 Shelley Appraisal Company, we are experts in knowing the worth of real estate features in Mooresville and Iredell County neighborhoods. The sales comparison approach to value is typically given the most weight when an appraisal is for a home sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this situation, the amount of revenue the real estate produces is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Analyzing the data from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. It is important to note that while this amount is probably the most accurate indication of what a property is worth, it probably will not be the final sales price. It'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 typically 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 Shelley Appraisal Company will help you get the most accurate property value, so you can make the most informed real estate decisions.