Comprehending Appraisals

Acquiring real estate can be the biggest financial decision many could ever consider. Whether it's where you raise your family, a second vacation home or a rental fixer upper, purchasing real property is an involved financial transaction that requires multiple people working in concert to make it all happen.

You're probably familiar with the parties taking part in the transaction. The most familiar person in the transaction is the real estate agent. Then, the bank provides the money required to fund the transaction. And the title company sees to it that all areas of the exchange are completed and that the title is clear to pass 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 is responsible for making 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. A licensed, certified, professional appraiser from RJE Real Estate Appraisal Service will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain the true status of the property, it's our responsibility to first perform a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the condition a reasonable person would expect them to be. To make sure the stated square footage has not been misrepresented and convey the layout of the house, the inspection often entails creating a 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 real property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

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

Analyzing Comparable Sales

Appraisers get to know the communities in which they appraise. They innately understand the value of specific features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject at hand. 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.

  • If, for example, the comparable property has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At RJE Real Estate Appraisal Service, we are experts in knowing the worth of particular items in Ann Arbor and Washtenaw County neighborhoods. The sales comparison approach to value is most often 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 an additional approach to value. In this case, the amount of revenue the property produces is taken into consideration along with income produced by similar properties to derive the current value.

Putting It All Together

Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property in question. It is important to note that while the appraised value is probably the most accurate indication of what a house is worth, it probably will not be the price at which the property closes. Depending on the specific circumstances 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.But the appraised value is typically used 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 RJE Real Estate Appraisal Service will help you get the most fair and balanced property value, so you can make wise real estate decisions.