Understanding Appraisals

Purchasing a home is one of the most serious financial decision most people may ever consider. It doesn't matter if it's where you raise your family, a seasonal vacation home or one of many rentals, the purchase of real property is an involved transaction that requires multiple people working in together to make it happen.

The parties participating in the real estate transaction are very familiar with the process. The most known person in the exchange is the real estate agent. Then, the lender who provides the financial capital required to bankroll the transaction. The title company ensures that all details of the transaction are completed and that a clear title transfers from the seller to the purchaser.

To learn more about appraising, call us today to talk about your specific property.

So, who makes sure the real estate is worth the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer could expect to pay — or a to seller receive — for a property, where both buyer and seller are informed parties. A certified, professional appraiser from Mallett Appraisal Group will ensure that you as an interested party are informed.

Inspecting the subject property

To determine the true status of the property, it is our duty to first complete a thorough inspection. We must physically see features such as the number of bedrooms and bathrooms, the location, improvements, etc. to ensure they really are there and are in the shape a typical buyer would expect them to be. The inspection includes an interior and exterior assessment, measurements, photos and a sketch of the house to ensure the square footage is proper and to convey the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the property.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of the property: the sales comparison approach, the cost approach and/or in the case of a rental property, an income approach.

Cost Approach (Replacement Cost)

For the cost approach, we use information on local building costs, labor rates and other factors to figure out how much it would cost to replace the property being appraised. This value usually sets the maximum on what a property would sell for. It's also the least used predictor of value.

Sales Comparison Approach

Appraisers get to know the subdivisions and market areas in which they work. They thoroughly understand the value of particular features to the residents of that area. The appraiser looks up recent transactions in the neighborhood and finds properties which are 'comparable' to the subject. By assigning a dollar value to certain items such as square footage, bathrooms, hardwood floors, fireplaces, pools or lot views (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 the subject.

For example, if 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 a certain amount to the comparable property.

An opinion of what the subject might sell for can only be determined once all differences between the comparables and the subject have been evaluated. At Mallett Appraisal Group, we are an authority in knowing the value of particular items in our service area neighborhoods. This approach to value is usually the most considered when an appraisal is for a real estate exchange.

The Income Approach

In the case of income producing properties - i.e. rental houses - the appraiser may use a third way of valuing real estate. In this situation, the amount of revenue the property produces is taken into consideration along with income produced by comparable properties to derive the current value.

Coming Up With The Final Value

Combining the information from all applicable approaches to value, the appraiser is then ready to state an estimated market value for the property. It is important to note that while the appraised value is the most reliable indication of what a house is worth, it probably will not be the final sales price. There 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 get back in the event they had to sell the property again. At the end of the day, an appraiser from Mallett Appraisal Group will guarantee you get the most accurate property value, so you can make the most informed real estate decisions.