Real Property Appraisals: A Primer

A home purchase is the largest investment many will ever consider. Whether it's a main residence, a seasonal vacation property or a rental fixer upper, purchasing real property is an involved transaction that requires multiple parties to see it through.


	To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

Most people are familiar with the parties having a role in the transaction. The real estate agent is the most familiar face in the transaction. Next, the lender provides the financial capital required to bankroll the transaction. The title company sees to it that all areas of the exchange are completed and that the title is clear to pass to the buyer from the seller.

So what party is responsible for making sure the value of the property is in line with the amount being paid? This is where you meet the appraiser. We provide an unbiased estimate of what a buyer could expect to pay - or a seller receive - for a property, where both buyer and seller are informed parties. A professional North Carolina licensed appraiser from Henderson Appraisal Service will ensure you as an interested party are informed.

The inspection is where an appraisal starts

To determine the true status of the property, it's our responsibility to first complete a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they really are there and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the property.

Next, after the inspection, we use two or three approaches when determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

Here, we analyze information on local construction costs, labor rates and other elements to figure out how much it would cost to replace the property being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers can tell you a lot about the subdivisions in which they work. We innately understand the value of particular features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of 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 property 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.
If the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount 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. This approach to value is commonly awarded the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third approach to value. In this case, the amount of revenue the real estate generates is factored in with other rents in the area for comparable properties to derive the current value.

Coming Up With the Final Value

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of a property's market value It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is typically 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 put the property on the market again. Here's what it all boils down to: An appraiser from Henderson Appraisal Service will help you attain the most accurate property value, so you can make profitable real estate decisions.