A Description of the Appraisal Process

A home purchase can be the most significant transaction many of us may ever encounter. It doesn't matter if where you raise your family, a seasonal vacation property or one of many rentals, the purchase of real property is an involved financial transaction that requires multiple parties to see it through.

Most of the participants are quite familiar. The most recognizable face in the exchange is the real estate agent. Then, the mortgage company provides the money necessary to fund the deal. The title company makes sure that all requirements of the transaction are completed and that the title is clear to pass to the buyer from the seller.

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So, who makes sure the property is worth the amount being paid? 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 Gen 7 will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain an accurate status of the property, it's our duty to first perform a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly exist and are in the shape a typical buyer would expect them to be. To ensure the stated size of the property has not been misrepresented and describe the layout of the property, 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 house.

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.

Replacement Cost

This is where the appraiser analyzes information on local building costs, labor rates and other factors to calculate how much it would cost to build a property comparable to the one being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers can tell you a lot about the neighborhoods in which they appraise. They innately understand the value of certain 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 property being appraised. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we add or subtract from each comparable's sales price so that they more accurately match the features of subject.

For example, if the comparable property has an irrigation system and the subject does not, the appraiser may deduct 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. At Gen 7, we are an authority when it comes to knowing the value of real estate features in Gig Harbor and Pierce County neighborhoods. The sales comparison approach to value is commonly awarded the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third method of valuing real estate. In this situation, the amount of income the property yields is factored in with income produced by similar properties to derive the current value.

The Bottom Line

Examining the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valueDepending on the individual situations 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 the event they had to sell the property again. Here's what it all boils down to, an appraiser from Gen 7 will guarantee you get the most accurate property value, so you can make wise real estate decisions.