What Are the Components of an Appraisal?

Acquiring a house can be the most important financial decision most of us could ever encounter. It doesn't matter if where you raise your family, a second vacation home or a rental fixer upper, the purchase of real property is an involved transaction that requires multiple people working in concert to see it through.

It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most known face in the exchange. Then, the lender provides the financial capital required to finance the exchange. And ensuring all details of the sale 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, who's responsible for making sure the property is worth the amount being paid? 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 Cosgrove Appraisal will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To determine an accurate status of the property, it's our responsibility to first perform a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are present and are in the shape a reasonable buyer would expect them to be. To make sure the stated square footage is accurate and describe the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would affect the value of the property.

Following the inspection, an appraiser uses two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

This is where we use information on local building costs, labor rates and other elements to determine how much it would cost to build a property similar 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.

Sales Comparison

Appraisers can tell you a lot about the neighborhoods in which they appraise. They thoroughly understand the value of particular 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 property at hand. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately match the features of subject property.

  • If, for example, the comparable 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.
  • 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.

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. When it comes to knowing the true value of features of homes in Arlington and Tarrant, Cosgrove Appraisal can't be beat. This approach to value is usually awarded the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional method of valuing a property. In this scenario, the amount of revenue the real estate generates is taken into consideration along with other rents in the area for comparable properties to determine the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. It's not uncommon for prices to 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 get back in case they had to sell the property again. It all comes down to this, an appraiser from Cosgrove Appraisal will help you attain the most accurate property value, so you can make wise real estate decisions.