What Is an Appraisal?

A home purchase is the most significant investment most people might ever encounter. It doesn't matter if it is where you raise your family, or an additional vacation property or an investment, the purchase of real property is an involved transaction that requires multiple people working in concert to make it all happen.

Most of the people involved are very familiar. The most known face in the transaction is the real estate agent. Next, the bank provides the money required to bankroll the exchange. And the title company ensures that all aspects of the transaction are completed and that the title is clear to transfer from the seller to the purchaser.

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So, who makes sure the property is worth the amount being paid? 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 Northeast Valuation Group will ensure, you as an interested party, are informed.

Appraisals start with the property inspection

Our first task at Northeast Valuation Group is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are present and are in the condition a typical buyer would expect them to be. To ensure the stated square footage has not been misrepresented and describe the layout of the home, the inspection often entails creating a digital sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

Once the site has been inspected, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

Here, the appraiser gathers information on local building costs, labor rates and other elements to calculate how much it would cost to build a property comparable to the one being appraised. This estimate commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Analyzing Comparable Sales

Appraisers become very familiar with the subdivisions in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject in question. 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 are more accurately in line with the features of subject property.

  • If, for example, the comparable has an updated kitchen and the subject doesn't, the appraiser may subtract the contributing value of an updated kitchen from the sales price of the comparable.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain 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. The sales comparison approach to value is commonly given the most consideration when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes employed when an area has a measurable number of rental properties. In this scenario, the amount of income the property yields is factored in with income produced by neighboring properties to derive the current value.

Coming Up With The Final Value

Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property in question. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of a property's value. Depending on the specific situations 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 often employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to sell the property again. The bottom line is, an appraiser from Northeast Valuation Group will guarantee you discover the most fair and balanced property value, so you can make the most informed real estate decisions.