Understanding the Appraisal Process

A home purchase is the most important financial decision some of us will ever make. It doesn't matter if a main residence, an additional vacation property or an investment, the purchase of real property is a detailed transaction that requires multiple parties to see it through.

Practically all the parties participating are very familiar. The real estate agent is the most recognizable entity in the transaction. Then, the lender provides the money necessary to bankroll the transaction. The title company ensures that all details of the exchange are completed and that a clear title transfers from the seller to the buyer.

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So, what party makes sure the property is worth the purchase price? In comes the appraiser. We provide an unbiased opinion 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. 

Inspecting the subject property

The first task at Newberry Appraisal Services, LLC is to inspect the property to determine its true status. The aspects of the property must be seen first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and conveying the layout of the property. Most importantly, obvious features - or defects - that would affect the value of the property are identified.

Back at the office, appropriate approaches to value are utilized to determine the value of real property: a sales comparison analysis, a replacement cost analysis, and/or an income approach when rental properties are prevalent.  In many cases, the sale comparison analysis is the most reliable approach and may be the only approach developed.

Replacement Cost

Here, the appraiser gathers information on local building costs, the cost of labor and other elements to determine how much it would cost to replace the property being appraised. This figure often sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison Analysis

Appraisers are intimately familiar with the communities in which they appraise. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser looks up recent sales in the vicinity and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, the comparable properties are adjusted so that they more accurately match the features of subject property.

  • For example, if the comparable has a storm shelter and the subject does not, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
  • If the subject 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. At Newberry Appraisal Services, LLC, we are an authority in knowing the worth of particular items in the counties we service. This approach to value is usually awarded the most consideration when an appraisal is for a home purchase or refinance.

Valuation Using the Income Approach

A third method of valuing a property is sometimes applied when a neighborhood has a reasonable number of renter occupied properties. In this case, the amount of income the property generates is taken into consideration along with other rents in the area for comparable properties to determine the current value.

The Bottom Line

Analyzing the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. The estimate of value at the bottom of 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 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 typically 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 put the property on the market again. At the end of the day, Newberry Appraisal Services, LLC will guarantee you get the most accurate property value, so you can make wise real estate decisions.