Understanding Appraisals

Acquiring a home can be the biggest financial decision most people will ever make. Whether it's a main residence, a second vacation home or an investment, purchasing real property is a complex financial transaction that requires multiple parties to see it through.

You're likely to be familiar with the parties having a role in the transaction. The most familiar face in the exchange is the real estate agent. Next, the mortgage company provides the money necessary to bankroll the deal. And ensuring all areas of the transaction are completed and that the title is clear to transfer 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, what party makes sure the value of the property is in line with the amount being paid? 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Williams Appraisal & Real Estate Co. will ensure, you as an interested party, are informed.

Inspecting the subject property

To determine the true status of the property, it's our duty to first conduct a thorough inspection. We must actually view features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the shape a typical buyer would expect them to be. To make sure the stated square footage is accurate and describe the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the property.

Next, after the inspection, an appraiser uses two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where the appraiser gathers information on local construction costs, labor rates and other elements to calculate how much it would cost to construct a property comparable to the one being appraised. This value usually sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers can tell you a lot about the subdivisions in which they appraise. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home at hand. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • If, for example, the comparable property has a fireplace and the subject doesn't, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
  • However, 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 might 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 Billings and Yellowstone, Williams Appraisal & Real Estate Co. is your local authority. This approach to value is typically awarded the most consideration when an appraisal is for a home purchase.

Valuation Using the Income Approach

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

Reconciliation

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price 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 is actually worth. At the end of the day, an appraiser from Williams Appraisal & Real Estate Co. will guarantee you get the most accurate property value, so you can make profitable real estate decisions.