A home appraisal is the largest, single investment most people will ever make. Whether it’s a primary residence, a second vacation home or an investment, the purchase of real property is a complex financial transaction that requires multiple parties’ involvement. The realtor is the most common face of the transaction; however, an appraiser is critical in determining the value of the property involved.
An appraisal is 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. To be an informed party, most people turn to a licensed, certified, professional appraiser to provide them with the most accurate estimate of the true value of their property.
What goes into a real estate appraisal? It all starts with the inspection. An appraiser's duty is to inspect the property being appraised to ascertain the true status of that property. He or she must actually see features, such as the number of bedrooms, bathrooms, the location and so on, to ensure that they really exist and are in the condition that a reasonable buyer would expect. The inspection often includes a sketch of the property, ensuring the proper square footage and conveying the layout. Most importantly, the appraiser looks for any obvious features – or defects – that would affect value.
Appraisers rely on the sales comparison approach to help determine property value. Appraisers get to know the neighborhoods in which they work. They understand the value of certain features to the residents of that area. They know the traffic patterns, school zones and busy thruways; they use this information to determine which attributes of a property make a difference in the value. Then, the appraiser researches recent sales in the vicinity and finds properties which are ''comparable'' to the subject being appraised. The sales prices of these properties are used as a basis to begin the sales comparison approach.
Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), the appraiser adjusts the comparable properties to more accurately portray the subject property. For example, if the comparable property has a pool and the subject does not, the appraiser may deduct the value of a pool 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.
Combining information from the inspection and sales comparisons, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. Mitigating factors such as seller motivation, urgency or ''bidding wars'' may adjust the final price up or down. The bottom line: an appraiser helps you get the most accurate property value so you can make the most informed real estate decisions.