Home Appraisals: A Primer

Acquiring real estate is the most important financial decision most of us may ever consider. Whether it's a primary residence, a seasonal vacation home or one of many rentals, the purchase of real property is an involved financial transaction that requires multiple people working in concert to see it through.

The majority of the participants are very familiar. The real estate agent is the most recognizable entity in the exchange. Next, the mortgage company provides the financial capital required to fund the deal. The title company ensures that all details of the exchange are completed and that the title is clear to transfer to the buyer from the seller.

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 is responsible for making sure the real estate is worth the purchase price? This is where you meet the appraiser. 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 O'Dorisio Enterprises Inc. will ensure, you as an interested party, are informed.

Inspecting the subject property

To determine an accurate status of the property, it's our duty to first perform a thorough inspection. We must actually view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the condition a typical person would expect them to be. To make sure the stated square footage is accurate and convey the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.

Once the site has been inspected, 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.

Replacement Cost

Here, we analyze information on local construction costs, the cost of labor and other elements to ascertain how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers become very familiar with the subdivisions in which they appraise. They innately understand the value of certain features to the residents of that area. Then, the appraiser researches recent sales in the neighborhood and finds properties which are 'comparable' to the property in question. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, 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 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.

An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At O'Dorisio Enterprises Inc., we are an authority in knowing the value of particular items in Ark and Gloucester County neighborhoods. The sales comparison approach to value is commonly awarded the most weight when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing a property is sometimes used when a neighborhood has a measurable number of rental properties. In this case, the amount of revenue the real estate generates is taken into consideration along with income produced by comparable properties to derive the current value.

Putting It All Together

Analyzing the data from all applicable approaches, the appraiser is then ready to put down 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 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 often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from O'Dorisio Enterprises Inc. will help you get the most accurate property value, so you can make the most informed real estate decisions.