What Goes Into an Appraisal?

Buying a home is the most important financial decision many people may ever make. Whether it's a main residence, an additional vacation property or one of many rentals, purchasing real property is an involved financial transaction that requires multiple parties to make it all happen.

It's likely you are familiar with the parties taking part in the transaction. The most recognizable face in the transaction is the real estate agent. Next, the mortgage company provides the money required to bankroll the transaction. And the title company sees to it that all details of the exchange are completed and that a clear title transfers to the buyer from the seller.

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 makes sure the value of the real estate is in line with the purchase price? In comes the appraiser. We provide an unbiased opinion 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 Hagan Real Estate, Inc. will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To determine an accurate status of the property, it's our duty to first perform a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the shape a reasonable person would expect them to be. To ensure the stated size of the property has not been misrepresented and illustrate the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

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

Cost Approach

Here, we use information on local construction costs, the cost of labor and other factors to calculate how much it would cost to replace the property being appraised. This figure commonly sets the maximum on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers become very familiar with the subdivisions in which they appraise. They innately understand the value of specific features to the people of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as square footage, extra 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 are more accurately in line with the features of subject.

  • If, for example, the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable.
  • However, in the case where the subject has something such as an extra half bath that a comparable doesn't have, the appraiser might add the value of that bath 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. At Hagan Real Estate, Inc., we are experts in knowing the value of particular items in Cullman and Cullman County neighborhoods. This approach to value is usually given the most consideration 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 a third approach to value. In this situation, the amount of income the property generates is taken into consideration along with income produced by similar properties to derive the current value.

Arriving at a Value Conclusion

Examining the data from all applicable approaches, the appraiser is then ready to put down 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 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'. But the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to sell the property again. Here's what it all boils down to, an appraiser from Hagan Real Estate, Inc. will help you get the most fair and balanced property value, so you can make the most informed real estate decisions.