What Are the Components of an Appraisal?

Purchasing real estate is the most significant investment some of us could ever make. It doesn't matter if where you raise your family, a second vacation property or a rental fixer upper, purchasing real property is a detailed transaction that requires multiple people working in concert to make it all happen.

The majority of the participants are very familiar. The most known entity in the transaction is the real estate agent. Then, the lender provides the money required to finance the transaction. And the title company ensures that all aspects of the sale 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, who's responsible for making sure the value of the property is consistent with the purchase price? In comes 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 L. Ellis Appraisals Inc will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at L. Ellis Appraisals Inc is to inspect the property to determine its true status. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the property.

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

Replacement Cost

This is where we pull information on local building costs, the cost of labor and other factors to figure out how much it would cost to replace the property being appraised. This figure often sets the maximum on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers get to know the neighborhoods in which they appraise. They thoroughly understand the value of certain 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 being appraised. By assigning a dollar value to 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 more accurately match the features of subject.

  • For example, if the comparable property has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
  • However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an 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. At L. Ellis Appraisals Inc, we are experts when it comes to knowing the value of real estate features in Austin and Travis County neighborhoods. This approach to value is typically given the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing a house is sometimes used when an area has a measurable number of rental properties. In this case, the amount of revenue the property produces is factored in with other rents in the area for comparable properties to derive the current value.

The Bottom Line

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. Note: While the appraised value is probably the strongest indication of what a property is worth, it probably will not be the final sales price. Depending on the specific 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 often employed 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 L. Ellis Appraisals Inc will help you attain the most fair and balanced property value, so you can make wise real estate decisions.