What Are the Parts of an Appraisal?

A home purchase can be the most serious financial decision most of us will ever encounter. Whether it's where you raise your family, an additional vacation property or an investment, purchasing real property is a complex financial transaction that requires multiple people working in concert to pull it all off.

It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most familiar face in the exchange. Next, the mortgage company provides the financial capital necessary to bankroll the transaction. And ensuring all areas of the transaction are completed and that the title is clear to transfer from the seller to the purchaser 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, what party is responsible for making sure the value of the property is in line with the amount being paid? In comes 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 My Appraisals AZ LLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at My Appraisals AZ LLC is to inspect the property to determine its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the condition a reasonable buyer 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, we look for any obvious amenities - or defects - that would have an impact on the value of the property.

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

Here, the appraiser gathers information on local construction costs, labor rates and other elements to derive how much it would cost to construct a property comparable to the one being appraised. This value often sets the maximum on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers are intimately familiar with the communities in which they work. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the home 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 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 fireplace and the subject does not, the appraiser may deduct the value of a fireplace 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 an amount to the comparable property.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At My Appraisals AZ LLC, we are experts when it comes to knowing the worth of particular items in Tucson and Pima County neighborhoods. The sales comparison approach to value is commonly awarded the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing a house is sometimes applied when an area has a reasonable number of rental properties. In this case, the amount of revenue the real estate yields is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Putting It All Together

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. It is important to note that while the appraised value is probably the best indication of what a property is worth, it probably will not be the price at which the property closes. 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 employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to sell the property again. The bottom line is, an appraiser from My Appraisals AZ LLC will help you discover the most fair and balanced property value, so you can make wise real estate decisions.