Real Property Appraisals: A Primer

Their home's purchase is the most significant investment many of us will ever make. It doesn't matter if where you raise your family, a seasonal vacation home or an investment, the purchase of real property is a detailed financial transaction that requires multiple people working in concert to see it through.

Practically all the people involved are very familiar. The most recognizable person in the exchange is the real estate agent. Then, the mortgage company provides the financial capital needed to fund the exchange. And the title company ensures that all requirements of the transaction are completed and that a clear title transfers from the seller to the buyer.

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

So, who's responsible for making sure the property is worth 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 Allstate Appraisal, Inc. will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

Our first task at Allstate Appraisal, Inc. is to inspect the property to ascertain 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 indeed are present 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 correct and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the house.

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

Replacement Cost

Here, the appraiser analyzes information on local building costs, labor rates and other factors to ascertain how much it would cost to replace the property being appraised. This estimate usually sets the upper limit 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 specific 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. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they more accurately match the features of subject.

For example, if the comparable property has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

A true estimate 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 associating a value with features of homes in Phoenix and Maricopa, Allstate Appraisal, Inc. can't be beat. This approach to value is typically given the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third way of valuing real estate. In this scenario, the amount of income the property produces is factored in with income produced by nearby properties to determine the current value.

Putting It All Together

Combining information from all approaches, the appraiser is then ready to state an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, 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 Allstate Appraisal, Inc. will guarantee you get the most fair and balanced property value, so you can make profitable real estate decisions.