What are the parts of an appraisal?

One's home purchase can be the largest financial decision many people could ever make. It is a pretty involved transaction that requires multiple parties to make it all happen! The real estate agent is the most familiar entity in the exchange. Then, the lender provides the money required to fund the exchange. Ensuring all details of the transaction are completed and that the title is clear to transfer to the buyer from the seller is the title company. 

So who makes sure the property is consistent with the purchase price? This is where the appraiser comes in. 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 professional Arizona certified residential appraiser from Home Valuation Services of Arizona will ensure you, as an interested party, are informed.

Appraisals begin with the home inspection...

Our first duty is to inspect the property to ascertain its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the shape a typical buyer would expect them to be. To ensure the stated size of the property is accurate and document the layout of the house, the inspection often requires creating a sketch of the floor plan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.

There are three approaches to value when determining the value of real property: sales comparison approach, cost approach and the income approach (when rental properties are prevalent). 

Appraisers are intimately familiar with the subdivisions in which they appraise. We thoroughly understand the value of certain features to the residents of that area. The appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject in question. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately portray the features of subject. 

For example: If the comparable property has an extra half bath that the subject does not, the appraiser may subtract the value of that half bath from the sales price of the comparable home. If the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount 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. The sales comparison approach to value is typically given the most importance when an appraisal is for a real estate purchase. 

Cost Approach

This is where the appraiser gathers information on local building costs, labor rates and other factors to determine how much it would cost to build a property comparable to the one being appraised. This value commonly sets the maximum on what a property would sell for. The cost approach is also the least used method. 

Income Approach

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

The appraiser will write the report based on the type of approach to be used.  Once all of the data is gathered and analysis is performed an opinion of value will be determined.  The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property could sell for in an open market. Depending 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 typically used as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace.

At the end of the day: An appraiser from our company will help you attain the most fair and balanced property value, so you can make a more informed real estate decision.