Understanding Appraisals

A home purchase is the most significant investment some might ever make. Whether it's a main residence, a seasonal vacation property or one of many rentals, purchasing real property is a complex financial transaction that requires multiple people working in concert to make it all happen.

You're probably familiar with the parties having a role in the transaction. The real estate agent is the most recognizable person in the transaction. Next, the bank provides the financial capital required to finance the exchange. The title company makes sure that all areas of the sale are completed and that the title is clear to transfer from the seller to the buyer.

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So, what party is responsible for making sure the real estate is worth the purchase price? This is where the appraiser comes in. 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 Schulte Appraisal Services will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first responsibility at Schulte Appraisal Services 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 really are there and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the property, 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 property.

After the inspection, an appraiser uses two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

Here, the appraiser uses information on local construction costs, labor rates and other elements to determine how much it would cost to build a property nearly identical to the one being appraised. This figure commonly sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers can tell you a lot about the communities in which they work. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject 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 adjust the comparable properties so that they are more accurately in line with the features of subject.

Say, for example, the comparable has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
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.

A valid 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 Schulte Appraisal Services, we are an authority in knowing the worth of real estate features in Fayetteville and Washington County neighborhoods. The sales comparison approach to value is typically given the most consideration 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 approach to value. In this scenario, the amount of revenue the property yields is factored in with income produced by neighboring properties to derive the current value.

Putting It All Together

Examining the data from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. Note: While this amount is probably the strongest indication of what a house is worth, it may not be the final sales price. Depending 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.But the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. At the end of the day, an appraiser from Schulte Appraisal Services will help you get the most fair and balanced property value, so you can make the most informed real estate decisions.