Making Sense of the Appraisal Process

Their home's purchase is the most important investment many of us will ever encounter. It doesn't matter if a primary residence, a second vacation property or one of many rentals, purchasing real property is a complex transaction that requires multiple people working in concert to make it all happen.

The majority of the parties participating are very familiar. The real estate agent is the most familiar entity in the exchange. Next, the mortgage company provides the financial capital necessary to bankroll the exchange. The title company sees to it that all areas of the exchange are completed and that the title is clear to transfer from the seller to the buyer.

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So, who's responsible for making sure the value of the property is consistent with the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Berring Appraisals Inc will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first task at Berring Appraisals Inc is to inspect the property to determine its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed exist and are in the condition a reasonable buyer would expect them to be. To ensure 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 amenities - or defects - that would affect the value of the house.

Following the inspection, an appraiser uses 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

This is where we use information on local construction costs, the cost of labor and other factors to determine how much it would cost to build a property nearly identical to the one being appraised. This value 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 become very familiar with the communities in which they appraise. They innately understand the value of certain features to the people of that area. Then, the appraiser looks up recent sales in the neighborhood and finds properties which are 'comparable' to the property in question. 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 are more accurately in line with the features of subject.

For example, if the comparable has an extra half bath that the subject does not, the appraiser may deduct 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 a certain amount to the comparable property.

A true estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Berring Appraisals Inc, we are an authority in knowing the value of particular items in Gwynedd and Montgomery County neighborhoods. The sales comparison approach to value is commonly given the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third approach to value. In this situation, the amount of revenue the property produces is taken into consideration along with income produced by similar properties to give an indicator of the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valuePrices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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 is actually worth. The bottom line is, an appraiser from Berring Appraisals Inc will help you attain the most accurate property value, so you can make the most informed real estate decisions.