Understanding Appraisals

Getting real estate is the most significant transaction many of us could ever consider. It doesn't matter if where you raise your family, a seasonal vacation property or one of many rentals, purchasing real property is an involved financial transaction that requires multiple parties to make it all happen.

Most people are familiar with the parties taking part in the transaction. The most familiar person in the exchange is the real estate agent. Next, the mortgage company provides the financial capital required to finance the exchange. And ensuring all aspects of the transaction are completed and that a clear title passes from the seller to the purchaser 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 makes sure the value of the property is in line with the amount being paid? This is where you meet the appraiser. 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 Preston King Appraisal Company will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first task at Preston King Appraisal Company is to inspect the property to determine its true status. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed exist and are in the condition a reasonable person would expect them to be. To make sure the stated size of the property has not been misrepresented and convey the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

Following the inspection, we use two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

This is where the appraiser analyzes information on local building costs, the cost of labor and other elements to derive how much it would cost to replace the property being appraised. This value usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers get to know the neighborhoods in which they work. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent sales in the neighborhood and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

Say, for example, the comparable property has a storm shelter and the subject doesn't, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
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.

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. At Preston King Appraisal Company, we are experts when it comes to knowing the value of particular items in Jonesboro and Craighead County neighborhoods. This approach to value is most often given the most weight 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 - the appraiser may use an additional way of valuing a house. In this scenario, the amount of revenue the real estate produces is taken into consideration along with income produced by nearby properties to derive the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the property in question. Note: While the appraised value is probably the best indication of what a property is worth, it probably will not be the price at which the property closes. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But 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 sell the property again. Here's what it all boils down to, an appraiser from Preston King Appraisal Company will guarantee you get the most fair and balanced property value, so you can make wise real estate decisions.