Making Sense of the Appraisal Process

Their home's purchase is the most important financial decision most of us might ever consider. It doesn't matter if where you raise your family, a second vacation home or an investment, purchasing real property is an involved financial transaction that requires multiple people working in concert to pull it all off.

It's likely you are familiar with the parties taking part in the transaction. The most recognizable person in the exchange is the real estate agent. Then, the bank provides the money necessary to finance the transaction. And the title company makes sure that all requirements of the transaction are completed and that a clear title passes from the seller to the buyer.

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So, what party makes sure the value of the property is in line with the purchase price? This is where you meet the appraiser. We provide an unbiased estimate of what a buyer might 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 Jackson Appraisal Service will ensure, you as an interested party, are informed.

Inspecting the subject property

To determine the true status of the property, it's our duty to first complete a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the condition a reasonable buyer would expect them to be. To ensure the stated square footage has not been misrepresented and convey the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the property.

Once the site has been inspected, we use two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

This is where we pull information on local construction costs, the cost of labor and other elements to derive how much it would cost to build a property similar to the one being appraised. This estimate often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers become very 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 transactions 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 square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they are more accurately in line with the features of subject.

Say, for example, the comparable has an extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath from the sales price of the comparable.
If the subject property 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 could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to putting a value on features of homes in Austin and Travis, Jackson Appraisal Service can't be beat. This approach to value is usually given the most weight when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes employed when a neighborhood has a reasonable number of renter occupied properties. In this situation, the amount of revenue the property produces is taken into consideration along with other rents in the area for comparable properties to determine the current value.

The Bottom Line

Analyzing the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. Note: While this amount is probably the best indication of what a house is worth, it may not be the price at which the property closes. Depending on the individual 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.But the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to sell the property again. It all comes down to this, an appraiser from Jackson Appraisal Service will help you attain the most accurate property value, so you can make profitable real estate decisions.