Understanding Appraisals

A home purchase is the most significant financial decision most people could ever encounter. It doesn't matter if a main residence, a second vacation home or an investment, purchasing real property is a complex transaction that requires multiple people working in concert to make it all happen.

Most people are familiar with the parties taking part in the transaction. The most known person in the transaction is the real estate agent. Then, the mortgage company provides the money required to bankroll the transaction. 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.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, who makes sure the value of the real estate is consistent with the purchase price? 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 Central Alabama Appraisal will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first duty at Central Alabama Appraisal is to inspect the property to ascertain its true status. We must physically see 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 typical buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and conveying 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 house.

Next, after 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 pull information on local construction costs, labor rates and other factors to ascertain how much it would cost to replace the property being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers become very familiar with the subdivisions in which they work. They thoroughly understand the value of certain features to the people of that area. Then, the appraiser researches recent sales in the area and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • For example, if 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.
  • 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.

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 Wetumpka and Elmore, Central Alabama Appraisal is your local authority. The sales comparison approach to value is commonly awarded the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third approach to value. In this scenario, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to determine the current value.

Coming Up With The Final Value

Analyzing the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. It is important to note that while this amount is probably the most accurate indication of what a property is worth, it probably will not be the final sales price. There 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 the property is actually worth. The bottom line is, an appraiser from Central Alabama Appraisal will help you discover the most accurate property value, so you can make profitable real estate decisions.