What Goes Into an Appraisal?

Getting a house is the largest investment some will ever consider. It doesn't matter if a main residence, a second vacation home or an investment, the purchase of real property is a complex financial transaction that requires multiple people working in concert to pull it all off.

You're probably familiar with the parties taking part in the transaction. The real estate agent is the most known entity in the transaction. Then, the mortgage company provides the financial capital required to finance the exchange. And the title company sees to it that all details of the sale are completed and that a clear title passes from the seller to the buyer.

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 makes sure the property is worth the amount being paid? In comes the appraiser. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Eaton Appraisal will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first duty at Eaton Appraisal is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed exist and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we look for any obvious features - or defects - that would affect the value of the house.

Following the inspection, 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 gather information on local construction costs, labor rates and other factors to derive how much it would cost to build a property comparable to the one being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers are intimately familiar with the neighborhoods in which they appraise. They thoroughly understand the value of certain features to the residents of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

For example, if the comparable property has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to associating a value with features of homes in Riverton and Salt Lake, Eaton Appraisal is second to none. The sales comparison approach to value is most often awarded the most weight when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing a house is sometimes employed when a neighborhood has a reasonable number of rental properties. In this scenario, the amount of revenue the real estate produces is taken into consideration along with income produced by similar properties to give an indicator of the current value.

Putting It All Together

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But 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. The bottom line is, an appraiser from Eaton Appraisal will help you get the most fair and balanced property value, so you can make the most informed real estate decisions.