A Description of the Appraisal Process

Acquiring a house can be the largest transaction most people might ever consider. Whether it's where you raise your family, a second vacation property or one of many rentals, the purchase of real property is an involved transaction that requires multiple people working in concert to see it through.

Practically all the people participating are quite familiar. The most familiar face in the exchange is the real estate agent. Then, the bank provides the money necessary to fund the exchange. The title company ensures that all requirements of the sale are completed and that the title is clear to transfer to the buyer from the seller.

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So, what party is responsible for making sure the value of the property is in line with the purchase price? This is where you meet the appraiser. 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 licensed, certified, professional appraiser from Nathan Appraisals will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

Our first responsibility at Nathan Appraisals is to inspect the property to determine its true status. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the condition a reasonable person would expect them to be. To ensure the stated square footage has not been misrepresented and convey the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

Once the site has been inspected, we use two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, we analyze information on local construction costs, the cost of labor and other factors to derive how much it would cost to replace the property being appraised. This estimate commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers are intimately familiar with the communities in which they appraise. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of 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.

For example, if the comparable property has an extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath 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.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Nathan Appraisals, we are an authority when it comes to knowing the value of real estate features in Lima and Allen County neighborhoods. This approach to value is typically given the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third way of valuing real estate. In this scenario, the amount of revenue the real estate yields is taken into consideration along with income produced by similar properties to determine the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to state an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property is worth. Depending on the specific 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.But the appraised value is often 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 Nathan Appraisals will guarantee you discover the most accurate property value, so you can make the most informed real estate decisions.