Decoding the Appraisal Process

Getting a home can be the biggest transaction most people may ever consider. Whether it's a main residence, a seasonal vacation home or a rental fixer upper, purchasing real property is an involved financial transaction that requires multiple people working in concert to pull it all off.

Most people are familiar with the parties taking part in the transaction. The real estate agent is the most recognizable entity in the exchange. Then, the mortgage company provides the financial capital required to finance the deal. And the title company makes sure that all areas of the transaction are completed and that a clear title passes from the seller to the purchaser.

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So, who's responsible for making sure the property is worth 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 Wolff Appraisals will ensure, you as an interested party, are informed.

Appraisals start with the property inspection

To ascertain an accurate status of the property, it's our duty to first complete a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.

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

Replacement Cost

This is where the appraiser uses information on local building costs, the cost of labor and other factors to derive how much it would cost to construct a property nearly identical to the one being appraised. This value commonly sets the maximum on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers can tell you a lot about the neighborhoods in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser looks up recent sales in the vicinity and finds properties which are 'comparable' to the subject being appraised. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately portray the features of subject.

  • For example, if the comparable has a storm shelter and the subject does not, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
  • 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.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to valuing features of homes in Winston Salem and Forsyth, Wolff Appraisals is second to none. The sales comparison approach to value is most often given the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing a property is sometimes applied when a neighborhood has a measurable number of renter occupied properties. In this case, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Putting It All Together

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 on the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property is worth. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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 Wolff Appraisals will help you get the most fair and balanced property value, so you can make wise real estate decisions.