Making Sense of the Real Estate Appraisal Technique

Purchasing a home is the most tough transaction some people may ever make. Whether it's a main house, a seasonal vacation property or one of many rentals, purchasing real estate is a detailed act that requires several parties to see it through.

Most of the participants are quite familiar. The real estate agent is the most familiar entity in the transaction. Then, the banker provides the financial resources needed to finance the deal. Ensuring all aspects of the sale are done and that the title is clear to transfer from the seller to the buyer is the title company.

So what party is in charge for making sure the value of the property is in line with the purchase price? This is where you meet the appraiser. The Appraiser provides an impartial opinion 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.

Inspecting the subject property
The first duty of a Spokane Appraiser is to inspect the property to determine its true status. An Appraiser must actually see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed stand and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the size is proper and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that could have a positive and/or negative effect on the value of the house.

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

Replacement Cost
This is where the appraiser analyzes info on local construction costs, labor costs and other elements to value how much it would cost to replace the property being appraised. This value often sets the maximum on what a property would sell for. It's also the least used method.

Sales Comparison
Appraisers become very accustomed with the neighborhoods in which they appraise. We innately learn the value of certain features to the homeowners of that territory. Then, the appraiser looks up the latest sales in the area and finds properties which are like to the property being appraised. 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 a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable.
However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.
A true estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. This approach to value is commonly given the most consideration when an appraisal is for a home purchase.

Valuation Using the Income Approach
In the case of income producing properties - rental residences for example - we may use an additional way of valuing a house. In this case, the amount of revenue the real estate generates is factored in with income produced by neighboring properties to derive the current value.

Putting It All Together
Linking information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. Note: While the appraised value is probably the best indication of what a house would sell for in an open market, 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 they could get back in the event they had to sell the home again. It all comes down to this: An appraiser from a Spokane Appraiser will help you achieve the most honest and balanced property value, so you can make the most informed real estate decisions.

Mike has 14+ years of Residential Real Estate Appraisal exposure as a Spokane Appraiser, and is also the Owner of Spokane Appraiser which is located within the immediate Spokane area.