What Goes Into an Appraisal?

A home purchase is the most important transaction many will ever consider. It doesn't matter if a main residence, a seasonal vacation property or one of many rentals, purchasing real property is a detailed transaction that requires multiple parties to see it through.

It's likely you are familiar with the parties having a role in the transaction. The most familiar entity in the exchange is the real estate agent. Then, the mortgage company provides the financial capital needed to fund the transaction. The title company sees to it that all aspects of the sale are completed and that the title is clear to pass from the seller to the purchaser.

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So, who makes sure the value of the property is in line with the purchase price? 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 licensed, certified, professional appraiser from Martin Appraisal Company, Inc. will ensure, you as an interested party, are informed.

Inspecting the subject property

To determine the true status of the property, it's our duty to first complete a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed exist and are in the condition a typical buyer would expect them to be. To ensure the stated square footage is accurate and convey the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would affect the value of the property.

Once the site has been inspected, 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 uses information on local construction costs, labor rates and other elements to ascertain how much it would cost to build a property comparable to the one being appraised. This value commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers are intimately familiar with the communities in which they work. They innately understand the value of specific 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 in question. 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 property.

  • Say, for example, the comparable property 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.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

A true estimate of what the subject might 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 Germantown and Shelby, Martin Appraisal Company, Inc. can't be beat. This approach to value is typically given the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes used when a neighborhood has a measurable number of renter occupied properties. In this case, the amount of revenue the property generates is taken into consideration along with income produced by nearby properties to derive the current value.

Putting It All Together

Analyzing the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property is worth. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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 put the property on the market again. Here's what it all boils down to, an appraiser from Martin Appraisal Company, Inc. will guarantee you get the most fair and balanced property value, so you can make profitable real estate decisions.