Comprehending Appraisals

Getting a home can be the most significant financial decision many of us may ever consider. It doesn't matter if a main residence, a second vacation property or a rental fixer upper, purchasing real property is a complex financial transaction that requires multiple people working in concert to make it all happen.

The majority of the participants are very familiar. The real estate agent is the most known entity in the transaction. Next, the mortgage company provides the money needed to finance the exchange. And the title company sees to it that all requirements of the transaction 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 real estate is consistent with the purchase price? This is where you meet the appraiser. We provide an unbiased opinion 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 Medina Appraisal Company will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To ascertain the true status of the property, it's our duty to first conduct a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present and are in the shape a reasonable buyer would expect them to be. To make sure the stated square footage is accurate and describe the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify 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: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

This is where we gather information on local building costs, the cost of labor and other factors to derive how much it would cost to replace the property being appraised. This estimate often sets the maximum on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers are intimately familiar with the neighborhoods in which they appraise. They thoroughly understand the value of certain features to the residents of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the home 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 add or subtract from each comparable's sales price so that they more accurately match the features of subject property.

  • For example, if the comparable property has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system 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 a certain 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 knowing the true value of features of homes in Brunswick, OH and Medina, Medina Appraisal Company can't be beat. The sales comparison approach to value is commonly awarded the most weight when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional way of valuing a property. In this case, the amount of income the real estate yields is factored in with income produced by nearby properties to give an indicator of the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. It is important to note that while the appraised value is probably the strongest indication of what a house 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'. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to sell the property again. It all comes down to this, an appraiser from Medina Appraisal Company will guarantee you attain the most accurate property value, so you can make the most informed real estate decisions.