Understanding Appraisals

Acquiring a home can be the most important transaction most could ever encounter. Whether it's where you raise your family, an additional vacation property or an investment, the purchase of real property is an involved financial transaction that requires multiple parties to make it all happen.

You're probably familiar with the parties taking part in the transaction. The most known face in the exchange is the real estate agent. Then, the bank provides the money needed to bankroll the transaction. And ensuring all areas of the sale are completed and that a clear title passes to the buyer from the seller is the title company.

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 property is worth the amount being paid? 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Baker Appraisal Services, Inc. will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at Baker Appraisal Services, Inc. is to inspect the property to ascertain its true status. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.

Back at the office, an appraiser uses two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

Here, we use information on local building costs, the cost of labor and other factors to ascertain how much it would cost to build a property comparable to the one being appraised. This estimate commonly sets the upper limit on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers can tell you a lot about the subdivisions in which they appraise. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property in question. 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 add or subtract from each comparable's sales price so that they more accurately portray the features of subject.

  • If, for example, the comparable property has an irrigation system and the subject doesn't, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to associating a value with features of homes in Camden and Kent, Baker Appraisal Services, Inc. is your local authority. This approach to value is commonly given the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third way of valuing a house is sometimes used when a neighborhood has a reasonable number of rental properties. In this scenario, the amount of revenue the real estate produces is factored in with income produced by nearby properties to give an indicator of the current value.

The Bottom Line

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that 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. 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'. But 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. It all comes down to this, an appraiser from Baker Appraisal Services, Inc. will help you attain the most fair and balanced property value, so you can make profitable real estate decisions.