Decoding the Appraisal Process

Buying a home is the most important financial decision many people could ever encounter. Whether it's a main residence, an additional vacation property or one of many rentals, the purchase of real property is a detailed transaction that requires multiple parties to see it through.

You're probably familiar with the parties taking part in the transaction. The real estate agent is the most familiar face in the transaction. Next, the bank provides the financial capital necessary to finance the deal. And ensuring all areas of the sale are completed and that a clear title passes from the seller to the purchaser is the title company.

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So, who's responsible for making sure the property is worth the purchase price? 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 Prospect Appraisal, LLC will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

Our first responsibility at Prospect Appraisal, LLC is to inspect the property to determine its true status. We must actually view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is correct and conveying the layout of the property. Most importantly, we identify 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 to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

Here, we pull information on local building 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 maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers become very familiar with the communities in which they work. They innately understand the value of certain features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

For example, if the comparable has an extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath from the sales price of the comparable.
If the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Prospect Appraisal, LLC, we are an authority in knowing the worth of particular items in middlebury and Addison County neighborhoods. This approach to value is usually 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 an additional method of valuing real estate. In this scenario, the amount of revenue the property produces 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 state an estimated market value for the property in question. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property is worth. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. 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 recover in case they had to sell the property again. It all comes down to this, an appraiser from Prospect Appraisal, LLC will help you get the most fair and balanced property value, so you can make the most informed real estate decisions.