What Are the Components of an Appraisal?

Acquiring real estate can be the most important transaction many of us might ever make. It doesn't matter if a primary residence, an additional vacation property or an investment, the purchase of real property is a detailed transaction that requires multiple parties to see it through.

It's likely you are familiar with the parties taking part in the transaction. The most recognizable entity in the transaction is the real estate agent. Then, the mortgage company provides the financial capital needed to fund the deal. And ensuring all details of the exchange 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, what party is 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 might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Oscar Stomprud Appraisals will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

Our first duty at Oscar Stomprud Appraisals is to inspect the property to determine its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the condition a reasonable person would expect them to be. To make sure the stated square footage has not been misrepresented and document the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the property.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

Here, the appraiser gathers information on local building costs, the cost of labor and other elements to determine how much it would cost to build a property similar to the one being appraised. This figure often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers are intimately familiar with the neighborhoods in which they work. They innately understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in the neighborhood and finds properties which are 'comparable' to the property in question. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional 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 has an extra half bath that the subject doesn't, the appraiser may deduct the value of that half bath from the sales price of the comparable.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

Once all necessary adjustments have been made, 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 putting a value on features of homes in Edmond and Oklahoma, Oscar Stomprud Appraisals can't be beat. The sales comparison approach to value is usually awarded the most weight 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 house. In this scenario, the amount of revenue the real estate generates is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Reconciliation

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 at the bottom of the appraisal report is not always 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 an offer or listing price up or down. Regardless, the appraised value is often 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 Oscar Stomprud Appraisals will guarantee you attain the most accurate property value, so you can make wise real estate decisions.