Real Estate Appraisals: A Primer

Acquiring real estate is the most important financial decision many people might ever encounter. It doesn't matter if a primary residence, an additional vacation home or an investment, purchasing real property is a detailed financial transaction that requires multiple people working in concert to see it through.

Practically all the participants are very familiar. The real estate agent is the most familiar person in the transaction. Then, the mortgage company provides the money necessary to fund the transaction. And ensuring all aspects of the transaction are completed and that a clear title passes from the seller to the buyer 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, who makes sure the value of the property is in line with the purchase price? This is where the appraiser comes in. We provide an unbiased estimate 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 Riverbridge Appraisal Services, LLC will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

Our first responsibility at Riverbridge Appraisal Services, LLC is to inspect the property to determine its true status. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are present and are in the shape a reasonable person would expect them to be. To ensure the stated size of the property is accurate and illustrate the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the property.

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

Replacement Cost

Here, the appraiser uses information on local building costs, the cost of labor and other factors to figure out how much it would cost to build a property nearly identical 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.

Sales Comparison

Appraisers get to know the neighborhoods in which they appraise. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • If, for example, the comparable property has a storm shelter and the subject doesn't, the appraiser may subtract the value of a storm shelter 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 a certain 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 Riverbridge Appraisal Services, LLC, we are experts when it comes to knowing the value of real estate features in Bay Village and Cuyahoga County neighborhoods. The sales comparison approach to value is commonly awarded the most weight when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes used when an area has a reasonable number of rental properties. In this scenario, the amount of revenue the real estate generates is taken into consideration along with income produced by nearby properties to determine the current value.

Putting It All Together

Examining the data from all approaches, the appraiser is then ready to state 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 what a property is worth. 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. It all comes down to this, an appraiser from Riverbridge Appraisal Services, LLC will help you attain the most accurate property value, so you can make wise real estate decisions.