What Are the Components of an Appraisal?

A home purchase can be the biggest transaction most people might ever consider. Whether it's where you raise your family, a second vacation home or an investment, the purchase of real property is a detailed transaction that requires multiple people working in concert to see it through.

It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most recognizable person in the exchange. Then, the bank provides the money needed to finance the deal. The title company ensures that all aspects of the sale are completed and that a clear title passes 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 makes sure the real estate is worth the amount being paid? This is where you meet 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 MAC Appraisal Company will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

To determine an accurate status of the property, it's our duty to first perform a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly exist and are in the shape a reasonable buyer would expect them to be. To ensure the stated square footage has not been misrepresented and describe the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the house.

Following the inspection, 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.

Cost Approach

Here, we use information on local construction costs, the cost of labor and other elements to derive how much it would cost to build a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers can tell you a lot about the subdivisions in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject 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.

  • Say, for example, the comparable property has an extra half bath that the subject does not, the appraiser may subtract the value of that half bath 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 valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At MAC Appraisal Company, we are experts in knowing the worth of real estate features in BOONVILLE and Cooper County neighborhoods. The sales comparison approach to value is usually given the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this situation, the amount of revenue the real estate produces is factored in with income produced by neighboring properties to derive the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. 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'. But 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 sell the property again. At the end of the day, an appraiser from MAC Appraisal Company will guarantee you get the most fair and balanced property value, so you can make profitable real estate decisions.