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Home Appraisals: A Primer

Their home's purchase is the most important investment many people will ever make. Whether it's where you raise your family, a seasonal vacation home or one of many rentals, purchasing real property is a detailed transaction that requires multiple people working in concert to see it through.

Most of the participants are quite familiar. The real estate agent is the most known entity in the transaction. Next, the lender provides the financial capital required to fund the transaction. And ensuring all areas of the exchange are completed and that the title is clear to pass 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, what party is responsible for making sure the value of the property is consistent with the amount being paid? In comes the appraiser. 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 RJE Real Estate Appraisal Service will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain an accurate status of the property, it's our duty to first perform a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are there and are in the condition a typical person would expect them to be. To make sure the stated square footage is accurate and document the layout of the home, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the property.

Next, after the inspection, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

This is where the appraiser pulls information on local construction costs, the cost of labor and other factors to calculate how much it would cost to build a property comparable to the one being appraised. This figure commonly sets the maximum on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers are intimately familiar with the neighborhoods in which they appraise. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the subject at hand. 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 more accurately match the features of subject.

  • Say, for example, the comparable property 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 home.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At RJE Real Estate Appraisal Service, we are experts when it comes to knowing the worth of particular items in Ann Arbor and Washtenaw County neighborhoods. The sales comparison approach to value is most often given the most importance when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing a property is sometimes used when an area has a reasonable number of rental properties. In this scenario, the amount of revenue the property yields is taken into consideration along with income produced by neighboring properties to derive the current value.

Reconciliation

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. Depending on the individual circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven 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. Here's what it all boils down to, an appraiser from RJE Real Estate Appraisal Service will help you get the most fair and balanced property value, so you can make profitable real estate decisions.