What Is an Appraisal?

Buying real estate can be the most important investment most of us could ever consider. It doesn't matter if a main residence, a seasonal vacation home or an investment, the purchase of real property is a detailed financial transaction that requires multiple people working in concert to pull it all off.

It's likely you are familiar with the parties taking part in the transaction. The most familiar entity in the transaction is the real estate agent. Then, the mortgage company provides the financial capital required to fund the deal. And the title company ensures that all aspects of the transaction 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 property is consistent with the purchase price? 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 a la mode will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

To ascertain the true status of the property, it's our responsibility to first complete a thorough inspection. We must actually see aspects of the property, 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 ensure the stated size of the property has not been misrepresented and document the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.

Next, after the inspection, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, the appraiser uses information on local construction costs, labor rates and other elements to ascertain how much it would cost to replace the property being appraised. This estimate commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers can tell you a lot about the subdivisions in which they appraise. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they more accurately match the features of subject property.

  • If, for example, the comparable has a fireplace and the subject doesn't, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
  • 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.

A valid 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 a la mode, we are an authority in knowing the value of real estate features in Edmond and Oklahoma County neighborhoods. The sales comparison approach to value is commonly awarded the most weight when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing a property is sometimes used when an area has a reasonable number of rental properties. In this case, the amount of income the real estate produces is factored in with income produced by similar properties to derive the current value.

The Bottom Line

Examining the data from all approaches, the appraiser is then ready to document an estimated market value for the subject property. It is important to note that while the appraised value is probably the strongest indication of what a house is worth, it probably will not be the price at which the property closes. Prices can always 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. The bottom line is, an appraiser from a la mode will guarantee you discover the most accurate property value, so you can make the most informed real estate decisions.