Understanding Appraisals

Purchasing real estate can be the most serious financial decision most people will ever consider. Whether it's where you raise your family, a second vacation home or an investment, purchasing real property is a complex financial 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 known person in the transaction. Next, the lender provides the financial capital needed to finance the transaction. The title company ensures that all aspects of the sale 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 property is worth the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Johnson Realty and Appraisal Co. will ensure, you as an interested party, are informed.

Appraisals begin with the home inspection

Our first responsibility at Johnson Realty and Appraisal Co. is to inspect the property to ascertain 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. The inspection often includes a sketch of the floorplan, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the house.

Back at the office, we use 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.

Cost Approach

This is where we analyze information on local building costs, the cost of labor and other elements to ascertain how much it would cost to replace the property being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers get to know the neighborhoods in which they appraise. They innately understand the value of particular features to the residents of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the property being appraised. 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 adjust the comparable properties so that they are more accurately in line with the features of subject.

  • Say, for example, the comparable has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace 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. When it comes to knowing the true worth of features of homes in Warren and Warren, Johnson Realty and Appraisal Co. is second to none. This approach to value is typically awarded the most consideration when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes used when an area has a reasonable number of rental properties. In this situation, the amount of revenue the real estate yields is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

Coming Up With The Final Value

Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from Johnson Realty and Appraisal Co. will help you attain the most accurate property value, so you can make the most informed real estate decisions.