Home Appraisals: A Primer

A home purchase can be the largest financial decision most of us could ever consider. Whether it's where you raise your family, an additional vacation property or one of many rentals, the purchase of real property is a detailed transaction that requires multiple parties to pull it all off.

You're probably familiar with the parties taking part in the transaction. The real estate agent is the most familiar face in the exchange. Then, the lender provides the financial capital needed to fund the transaction. And ensuring all areas of the exchange 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, 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 might 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 WARREN EUGENE PEACOCK will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

Our first duty at WARREN EUGENE PEACOCK is to inspect the property to determine its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly exist and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the property.

Once the site has been inspected, we use two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

Here, the appraiser analyzes information on local construction costs, labor rates and other elements to figure out how much it would cost to construct a property nearly identical to the one being appraised. This value usually sets the maximum on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers can tell you a lot about the subdivisions in which they appraise. They innately understand the value of specific 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 subject being appraised. 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 more accurately portray the features of subject.

  • Say, for example, the comparable has an irrigation system and the subject doesn't, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
  • However, in the case where the subject has something such as an extra half bath that a comparable doesn't have, the appraiser might add the value of that bath to the comparable property.

In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to valuing features of homes in Homosassa and Citrus, WARREN EUGENE PEACOCK is second to none. The sales comparison approach to value is most often given the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional way of valuing real estate. In this scenario, the amount of revenue the real estate yields is taken into consideration along with income produced by comparable 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 subject property. 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 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. At the end of the day, an appraiser from WARREN EUGENE PEACOCK will guarantee you discover the most fair and balanced property value, so you can make the most informed real estate decisions.