Understanding the Appraisal Process

One's home purchase is the biggest transaction most might ever encounter. It doesn't matter if it's a primary residence, a second vacation home or a rental fixer upper, purchasing real property is an involved transaction that requires multiple people working in concert to see it through.

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Most of the participants are very familiar. The real estate agent is the most known face in the exchange. Then, the lender provides the money necessary to bankroll the transaction. The title company ensures that all aspects of the transaction are completed and that the title is clear to transfer from the seller to the buyer.

So who's responsible for making sure the value of the real estate is consistent with the amount being paid? 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 professional Pennsylvania licensed appraiser from ERD Appraisals will ensure you as an interested party are informed.

The inspection is where an appraisal starts

To ascertain the true status of the property, it's our duty to first conduct a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the condition a reasonable 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, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the property.

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

Cost Approach

This is where the appraiser uses information on local construction costs, labor rates and other factors to calculate 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. The cost approach is also the least used predictor of value.

Analyzing Comparable Sales

Appraisers are intimately familiar with the subdivisions in which they work. We thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the property at hand. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, an 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.

For example, if the comparable property has an irrigation system and the subject doesn't, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
But, 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.

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. This approach to value is usually 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 - the appraiser may use a third method of valuing a property. In this situation, the amount of income the real estate generates is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

Coming Up With the Final Value

Analyzing the data from all approaches, the appraiser is then ready to state an estimated market value for the property in question. It is important to note that while the appraised value is probably the most reliable indication of what a property would sell for in an open market, it probably will not be the final sales price. Depending on the individual 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 typically used as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace. The bottom line is: An appraiser from ERD Appraisals will guarantee you get the most accurate property value, so you can make the most informed real estate decisions.