Real Estate Appraisals: A Primer

Buying real estate is the most important financial decision most people will ever encounter. It doesn't matter if where you raise your family, an additional vacation property or an investment, purchasing real property is a detailed transaction that requires multiple people working in concert to make it all happen.

You're probably familiar with the parties having a role in the transaction. The real estate agent is the most familiar face in the exchange. Then, the mortgage company provides the financial capital required to fund the exchange. The title company sees to it that all requirements of the sale are completed and that the title is clear to transfer to the buyer from the seller.

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So, who makes sure the property is worth the purchase price? This is where the appraiser comes in. 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 Ronald Birkmire III will ensure, you as an interested party, are informed.

Appraisals start with the inspection

To ascertain the true status of the property, it's our duty to first complete a thorough inspection. We must physically view features, 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 person would expect them to be. To make sure the stated size of the property is accurate and describe the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the house.

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

Cost Approach

This is where we pull information on local construction costs, the cost of labor and other factors to derive how much it would cost to build a property nearly identical to the one being appraised. This value often sets the maximum on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers are intimately familiar with the subdivisions in which they work. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the subject at hand. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

  • For example, if the comparable property 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, 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.

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 valuing features of homes in Oreland and Montgomery, Ronald Birkmire III can't be beat. The sales comparison approach to value is typically given the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes used when an area has a reasonable number of rental properties. In this case, the amount of revenue the real estate yields is factored in with other rents in the area for comparable properties to determine the current value.

The Bottom Line

Examining the data from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of a property's valueDepending on the individual circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.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. At the end of the day, an appraiser from Ronald Birkmire III will guarantee you discover the most accurate property value, so you can make the most informed real estate decisions.