Real Estate Appraisals: A Primer

Buying a home can be the most serious investment some people might ever consider. Whether it's a main residence, an additional vacation property or one of many rentals, purchasing real property is a detailed transaction that requires multiple people working in concert to pull it all off.

Practically all the parties participating are very familiar. The real estate agent is the most recognizable person in the transaction. Next, the bank provides the financial capital necessary to fund the transaction. The title company ensures that all details of the exchange are completed and that a clear title passes 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 makes sure the property is worth the purchase price? This is where you meet the appraiser. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from KT Appraisals LLC will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at KT Appraisals LLC 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 really exist and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the house.

Following the inspection, we use 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 the appraiser gathers information on local construction costs, the cost of labor and other elements to figure out how much it would cost to construct a property similar to the one being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers can tell you a lot about the subdivisions in which they appraise. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the property in question. By assigning a dollar value to 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 more accurately match the features of subject property.

  • Say, for example, the comparable has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
  • 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.

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. When it comes to putting a value on features of homes in Westminster and Carroll, KT Appraisals LLC is second to none. This approach to value is typically awarded the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third method of valuing real estate. In this situation, the amount of income the real estate generates is taken into consideration along with income produced by neighboring properties to derive the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. Note: While this amount is probably the most reliable indication of what a property is worth, it probably will not be the final sales price. 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 employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to sell the property again. It all comes down to this, an appraiser from KT Appraisals LLC will help you get the most accurate property value, so you can make profitable real estate decisions.