What Are the Parts of an Appraisal?

A home purchase is the most serious transaction most people could ever encounter. Whether it's where you raise your family, a seasonal vacation property or one of many rentals, the purchase of real property is an involved financial transaction that requires multiple people working in concert to make it all happen.

Most people are familiar with the parties taking part in the transaction. The real estate agent is the most recognizable person in the exchange. Then, the mortgage company provides the money required to fund the transaction. And ensuring all areas of the sale are completed and that a clear title passes 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, who makes sure the value of the real estate 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 Ferguson Appraisal will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first responsibility at Ferguson Appraisal is to inspect the property to ascertain its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are present and are in the condition a typical buyer would expect them to be. To ensure the stated size of the property has not been misrepresented and document the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the house.

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

Cost Approach

This is where the appraiser pulls information on local construction costs, labor rates and other elements to figure out how much it would cost to construct a property similar to the one being appraised. This value often sets the maximum on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers get to know the subdivisions in which they work. They thoroughly understand the value of certain features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject in question. 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 more accurately portray the features of subject property.

  • For example, if the comparable property has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
  • But, 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 Ferguson Appraisal, we are an authority in knowing the worth of particular items in Richmond and Fort Bend County neighborhoods. The sales comparison approach to value is usually awarded the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional way of valuing a property. In this scenario, the amount of income the property yields is taken into consideration along with other rents in the area for comparable properties to determine the current value.

Coming Up With The Final Value

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. Note: While the appraised value is probably the strongest indication of what a property is worth, it may not be the final sales price. Depending on the individual 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 employed 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 Ferguson Appraisal will guarantee you attain the most accurate property value, so you can make wise real estate decisions.