What Are the Components of an Appraisal?

Purchasing a house is the biggest transaction many people may ever encounter. Whether it's where you raise your family, a second vacation property or one of many rentals, the purchase of real property is a detailed transaction that requires multiple parties to pull it all off.

Practically all the participants are quite familiar. The real estate agent is the most recognizable person in the transaction. Then, the lender provides the financial capital necessary to bankroll the exchange. And the title company ensures that all requirements of the sale are completed and that the title is clear to transfer from the seller to the buyer.

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 property is worth the purchase price? 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 CDM Appraisals will ensure, you as an interested party, are informed.

Appraisals start with the inspection

Our first task at CDM Appraisals is to inspect the property to determine its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are there and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, we look for any obvious features - or defects - that would affect the value of the house.

Back at the office, we use two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

This is where we analyze information on local building costs, labor rates and other factors to figure out how much it would cost to build a property nearly identical to the one being appraised. This estimate often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers are intimately familiar with the subdivisions in which they appraise. They innately understand the value of specific features to the residents of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the subject at hand. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject.

  • Say, 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.
  • 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.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to valuing features of homes in Omaha and Douglas, CDM Appraisals is your local authority. This approach to value is typically given the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes applied when an area has a measurable number of renter occupied properties. In this situation, the amount of income the real estate produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to document an estimated market value for the subject property. Note: While the appraised value is probably the most reliable indication of what a property 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.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 get back in case they had to put the property on the market again. It all comes down to this, an appraiser from CDM Appraisals will help you discover the most fair and balanced property value, so you can make the most informed real estate decisions.