Understanding Appraisals

A home purchase can be the most significant transaction many of us will ever make. It doesn't matter if where you raise your family, an additional vacation property or an investment, the purchase of real property is a complex transaction that requires multiple people working in concert to make it all happen.

Practically all the people participating are quite familiar. The most familiar person in the transaction is the real estate agent. Then, the mortgage company provides the financial capital required to fund the transaction. The title company ensures that all aspects of the exchange are completed and that the title is clear to transfer from the seller to the buyer.

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 property is worth 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Data Systems, Inc. will ensure, you as an interested party, are informed.

Appraisals start with the property inspection

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 indeed are there and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate 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 property.

Following the inspection, an appraiser uses two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

This is where the appraiser analyzes information on local building costs, the cost of labor and other elements to determine how much it would cost to construct a property similar to the one being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers become very familiar with the communities in which they appraise. They innately understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • For example, if the comparable has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Data Systems, Inc., we are experts in knowing the value of particular items in Loxahatchee and Palm Beach County neighborhoods. The sales comparison approach to value is commonly given the most consideration 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 - we may use a third approach to value. In this case, the amount of revenue the real estate generates is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. 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'. 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 is actually worth. It all comes down to this, an appraiser from Data Systems, Inc. will help you discover the most fair and balanced property value, so you can make wise real estate decisions.