Real Property Appraisals: A Primer

Their home's purchase can be the largest investment many people will ever encounter. Whether it's a main residence, a second vacation home or a rental fixer upper, purchasing real property is an involved financial transaction that requires multiple parties to see it through.

The majority of the participants are quite familiar. The most recognizable person in the transaction is the real estate agent. Then, the lender provides the money needed to finance the exchange. And ensuring all aspects of the sale are completed and that the title is clear to pass to the buyer from the seller is the title company.

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 amount being paid? 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 JJG Appraisals will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at JJG Appraisals 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 condition a reasonable person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and conveying the layout of the property. Most importantly, we identify any obvious features - 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 real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

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

Paired Sales Analysis

Appraisers become very familiar with the subdivisions in which they work. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser looks up 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 square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • For example, if the comparable has a storm shelter and the subject does not, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
  • 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.

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. When it comes to valuing features of homes in Wakefield and Middlesex, JJG Appraisals is second to none. The sales comparison approach to value is usually awarded the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

A third method of valuing a property is sometimes employed when an area has a measurable number of renter occupied properties. In this case, the amount of revenue the property yields is factored in with other rents in the area for comparable properties to determine the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price 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. It all comes down to this, an appraiser from JJG Appraisals will help you get the most fair and balanced property value, so you can make profitable real estate decisions.