What Goes Into an Appraisal?

Getting real estate is the most important financial decision many people might ever consider. It doesn't matter if a primary residence, a second vacation home or an investment, the purchase of real property is an involved transaction that requires multiple parties to make it all happen.

Practically all the participants are very familiar. The real estate agent is the most known person in the exchange. Next, the lender provides the financial capital necessary to bankroll the exchange. And the title company makes sure that all details of the transaction are completed and that a clear title transfers 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, what party makes 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 Kalen Mills will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first task at Kalen Mills is to inspect the property to determine its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed exist and are in the shape a reasonable buyer would expect them to be. To ensure the stated square footage has not been misrepresented and document the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the house.

Next, after the inspection, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, we analyze information on local building costs, the cost of labor and other factors to determine how much it would cost to replace the property being appraised. This estimate usually sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Analyzing Comparable Sales

Appraisers can tell you a lot about the subdivisions in which they appraise. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home at hand. Using knowledge of the value of 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 are more accurately in line with the features of subject property.

For example, if the comparable 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.
But, in the case where the subject has something such as an extra half bath that a comparable doesn't have, the appraiser might add the value of that bath 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. At Kalen Mills , we are an authority in knowing the value of particular items in Kerrville and Kerr County neighborhoods. The sales comparison approach to value is most often given the most weight when an appraisal is for a home sale.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes applied when an area has a measurable number of rental properties. In this case, the amount of revenue the property produces is taken into consideration along with income produced by similar properties to give an indicator of the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valueThere are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing price up or down. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to sell the property again. The bottom line is, an appraiser from Kalen Mills will help you attain the most fair and balanced property value, so you can make wise real estate decisions.