What Are the Parts of an Appraisal?

Getting a house is the most important financial decision most will ever make. Whether it's a main residence, an additional vacation property or a rental fixer upper, the purchase of real property is an involved transaction that requires multiple parties to see it through.

Most of the people participating are quite familiar. The most familiar person in the transaction is the real estate agent. Then, the mortgage company provides the financial capital needed to fund the exchange. And ensuring all aspects of the exchange are completed and that a clear title transfers 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 purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Northern Arizona Appraisal, Inc. will ensure, you as an interested party, are informed.

Inspecting the subject property

To determine an accurate status of the property, it's our duty to first conduct a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the shape a typical buyer would expect them to be. To make sure the stated square footage has not been misrepresented and document the layout of the home, the inspection often entails 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 property.

Next, after the inspection, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

This is where the appraiser pulls information on local building costs, the cost of labor and other factors to calculate how much it would cost to build a property similar to the one being appraised. This estimate usually sets the upper limit on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers get to know the neighborhoods in which they work. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • If, for example, the comparable has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to knowing the true worth of features of homes in Phoenix and Maricopa, Northern Arizona Appraisal, Inc. can't be beat. The sales comparison approach to value is most often given the most weight when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes applied when a neighborhood has a measurable number of renter occupied properties. In this scenario, the amount of income the property generates 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 applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of a property's valueThere are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But the appraised value is typically used 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 sell the property again. The bottom line is, an appraiser from Northern Arizona Appraisal, Inc. will help you attain the most accurate property value, so you can make the most informed real estate decisions.