What Are the Components of an Appraisal?

Buying a house can be the most important financial decision most might ever encounter. It doesn't matter if a primary residence, a seasonal vacation home or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple parties to make it all happen.

It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most recognizable entity in the transaction. Next, the bank provides the financial capital needed to bankroll the exchange. And the title company makes sure that all aspects of the exchange are completed and that a clear title transfers 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, what party is responsible for making sure the value of the property is in line with the amount being paid? 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Mitchell Appraisals will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at Mitchell Appraisals is to inspect the property to determine its true status. We must see features first hand, 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 reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, 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.

Next, after the inspection, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

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

Analyzing Comparable Sales

Appraisers become very familiar with the subdivisions in which they work. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they more accurately match the features of subject.

  • Say, for example, 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 home.
  • 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 valuing features of homes in Navarre and Santa Rosa, Mitchell Appraisals can't be beat. The sales comparison approach to value is most often given the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

A third method of valuing a property is sometimes used when a neighborhood has a reasonable number of renter occupied properties. In this case, the amount of income the property generates is factored in with income produced by comparable properties to give an indicator of the current value.

Arriving at a Value Conclusion

Combining information 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. Depending on the specific 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 the property is actually worth. It all comes down to this, an appraiser from Mitchell Appraisals will help you attain the most fair and balanced property value, so you can make wise real estate decisions.