Real Property Appraisals: A Primer

Purchasing real estate is the most important transaction many of us might ever consider. It doesn't matter if a primary residence, a second vacation home or one of many rentals, purchasing real property is an involved transaction that requires multiple parties to see it through.

It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most recognizable person in the exchange. Next, the bank provides the money required to bankroll the deal. The title company makes sure that all areas of the exchange are completed and that the title is clear to pass 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 real estate is worth the amount being paid? In comes 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 Dennis Kern will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain the true status of the property, it's our duty to first complete a thorough inspection. We must actually view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the condition a typical person would expect them to be. To make sure the stated size of the property is accurate and illustrate the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the property.

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

Replacement Cost

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

Sales Comparison

Appraisers get to know the communities in which they appraise. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales in the neighborhood and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • If, for example, the comparable property 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 has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

A valid estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Dennis Kern, we are experts when it comes to knowing the value of particular items in Montevallo and Shelby County neighborhoods. This approach to value is commonly given the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing a property is sometimes used when a neighborhood has a measurable number of renter occupied properties. In this situation, the amount of income the real estate yields is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Reconciliation

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. Note: While the appraised value is probably the most accurate indication of what a house is worth, it may not be the price at which the property closes. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is often 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 Dennis Kern will guarantee you get the most accurate property value, so you can make the most informed real estate decisions.