Understanding the Appraisal Process

Their home's purchase is the most serious investment some people could ever make. Whether it's where you raise your family, a second vacation property or an investment, the purchase of real property is a complex financial transaction that requires multiple people working in concert to see it through.

Most of the participants are quite familiar. The most familiar entity in the exchange is the real estate agent. Next, the bank provides the money necessary to bankroll the transaction. And ensuring all details of the exchange are completed and that a clear title transfers 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's responsible for making sure the value of the property is in line with the amount being paid? In comes the appraiser. We provide an unbiased estimate 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 Johnson Valuations will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first duty at Johnson Valuations is to inspect the property to determine its true status. We must actually see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the condition a reasonable buyer would expect them to be. To make sure the stated square footage has not been misrepresented and document the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the property.

Following the inspection, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

Here, we use information on local building costs, labor rates and other factors to determine how much it would cost to replace the property being appraised. This value commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers become very familiar with the neighborhoods 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 real estate in question. 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 more accurately match the features of subject property.

  • If, for example, the comparable has an extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath from the sales price of the comparable.
  • However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an 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. When it comes to putting a value on features of homes in Decatur and Adams, Johnson Valuations is your local authority. This approach to value is usually awarded the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes applied when an area has a reasonable number of rental properties. In this case, the amount of income the real estate produces is taken into consideration along with other rents in the area for comparable properties to determine the current value.

Coming Up With The Final Value

Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. It is important to note that while this amount is probably the most accurate indication of what a house is worth, it may not be the final sales price. 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 used as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to sell the property again. At the end of the day, an appraiser from Johnson Valuations will help you get the most fair and balanced property value, so you can make profitable real estate decisions.