What Are the Components of an Appraisal?

A home purchase is the most important transaction many of us could ever encounter. It doesn't matter if a primary residence, a second vacation property or one of many rentals, purchasing real property is a complex transaction that requires multiple parties to make it all happen.

You're probably familiar with the parties having a role in the transaction. The real estate agent is the most familiar person in the transaction. Then, the mortgage company provides the money necessary to bankroll the exchange. And ensuring all details of the sale are completed and that the title is clear to transfer from the seller to the buyer is the title company.

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So, who's responsible for making 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 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 Northern Arizona Appraisal, Inc. will ensure, you as an interested party, are informed.

Appraisals begin with the home inspection

To determine an accurate status of the property, it's our duty to first perform a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are present and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the property.

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.

Cost Approach

This is where the appraiser gathers information on local construction costs, labor rates and other factors to determine how much it would cost to replace the property being appraised. This value often sets the maximum on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers become very familiar with the communities in which they appraise. They innately understand the value of specific features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate being appraised. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, 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 an irrigation system and the subject doesn't, the appraiser may subtract the value of an irrigation system from the sales price of the comparable.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Northern Arizona Appraisal, Inc., we are an authority when it comes to knowing the worth of real estate features in Phoenix and Maricopa County neighborhoods. This approach to value is commonly given the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third way of valuing a property is sometimes used when an area has a measurable number of renter occupied properties. In this scenario, the amount of revenue the property generates is factored in with income produced by comparable properties to determine the current value.

Reconciliation

Examining 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 at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property is worth. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final 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 the property is actually worth. It all comes down to this, an appraiser from Northern Arizona Appraisal, Inc. will help you attain the most accurate property value, so you can make the most informed real estate decisions.