What Are the Components of an Appraisal?

Purchasing a home is the biggest financial decision many of us could ever encounter. It doesn't matter if where you raise your family, an additional vacation property or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple people working in concert to make it all happen.

You're likely to be familiar with the parties having a role in the transaction. The most known person in the transaction is the real estate agent. Next, the bank provides the financial capital necessary to finance the transaction. And ensuring all requirements of the exchange are completed and that the title is clear to pass from the seller to the purchaser is the title company.

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So, what party is responsible for making sure the property is worth the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer could 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 Mid-Miami Appraisal, LLP will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first duty at Mid-Miami Appraisal, LLP is to inspect the property to determine its true status. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the shape a reasonable person would expect them to be. To make sure the stated square footage has not been misrepresented and convey the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the property.

Next, after the inspection, 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, we analyze information on local construction costs, labor rates and other elements to ascertain how much it would cost to replace the property being appraised. This value usually 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 subdivisions in which they work. They innately understand the value of certain features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, 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 extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath from the sales price of the comparable home.
  • 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 could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Mid-Miami Appraisal, LLP, we are experts when it comes to knowing the value of real estate features in Miamisburg and Montgomery County neighborhoods. The sales comparison approach to value is usually given the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes employed when an area has a reasonable number of rental properties. In this scenario, the amount of income the property yields is taken into consideration along with income produced by similar properties to give an indicator of the current value.

Arriving at a Value Conclusion

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valueIt'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'. Regardless, 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. Here's what it all boils down to, an appraiser from Mid-Miami Appraisal, LLP will guarantee you get the most fair and balanced property value, so you can make wise real estate decisions.