Comprehending Appraisals

Acquiring a house is the most significant investment many of us might ever consider. It doesn't matter if a primary residence, a second vacation home or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple parties to make it all happen.

Most of the participants are quite familiar. The most familiar entity in the exchange is the real estate agent. Next, the mortgage company provides the financial capital needed to bankroll the transaction. And ensuring all areas of the sale are completed and that the title is clear to pass to the buyer from the seller 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 consistent with the purchase price? This is where the appraiser comes in. 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 Daily Appraisal will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at Daily Appraisal is to inspect the property to ascertain its true status. We must actually see features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the shape a typical person would expect them to be. To make sure the stated square footage has not been misrepresented and convey the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for 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: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where the appraiser pulls information on local construction costs, labor rates and other elements to ascertain how much it would cost to replace the property being appraised. This estimate often 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 appraise. They thoroughly understand the value of particular features to the people 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 in question. By assigning a dollar value to 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 more accurately match the features of subject property.

  • If, for example, the comparable property has a storm shelter and the subject does not, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
  • 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 Daily Appraisal, we are an authority when it comes to knowing the value of real estate features in Laurel and Prince Georges County neighborhoods. This approach to value is most often awarded the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes applied when an area has a measurable number of rental properties. In this situation, the amount of income the real estate yields is factored in with income produced by nearby properties to derive the current value.

Arriving at a Value Conclusion

Analyzing the data from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. Note: While the appraised value is probably the most accurate indication of what a property is worth, it may not be the final sales price. 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 typically employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to put the property on the market again. The bottom line is, an appraiser from Daily Appraisal will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.