Decoding the Appraisal Process

Acquiring real estate can be the largest investment many might ever make. Whether it's a main residence, a seasonal vacation property or one of many rentals, the purchase of real property is an involved transaction that requires multiple people working in concert to see it through.

It's likely you are familiar with the parties taking part in the transaction. The most known entity in the transaction is the real estate agent. Next, the bank provides the money necessary to fund the deal. And ensuring all areas of the sale are completed and that the title is clear to transfer to the buyer from the seller is the title company.

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So, who's responsible for making sure the value of the property is consistent with the amount being paid? This is where the appraiser comes in. We provide an unbiased opinion 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 CMG Appraisals will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

To ascertain an accurate status of the property, it's our duty to first complete a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are there and are in the shape a reasonable person would expect them to be. To ensure the stated size of the property has not been misrepresented and convey the layout of the home, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.

Back at the office, an appraiser uses two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

This is where the appraiser analyzes information on local construction costs, labor rates and other elements to derive how much it would cost to replace the property being appraised. This value usually 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 appraise. They innately understand the value of particular features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject.

If, for example, the comparable property has an extra half bath that the subject does not, the appraiser may deduct 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 an amount 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 putting a value on features of homes in Jensen Beach and Martin, CMG Appraisals is second to none. The sales comparison approach to value is typically given the most weight when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing a house is sometimes employed when a neighborhood has a reasonable number of rental properties. In this scenario, the amount of revenue the real estate produces is taken into consideration along with other rents in the area for comparable properties to derive the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. It is important to note that while the appraised value is probably the best indication of what a house 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 the property is actually worth. Here's what it all boils down to, an appraiser from CMG Appraisals will guarantee you attain the most fair and balanced property value, so you can make profitable real estate decisions.