Home Appraisals: A Primer

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

Most people are familiar with the parties having a role in the transaction. The real estate agent is the most recognizable entity in the exchange. Then, the bank provides the financial capital necessary to fund the exchange. And ensuring all requirements of the exchange are completed and that the title is clear to transfer from the seller to the buyer is the title company.

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So, what party is responsible for making sure the real estate is worth the amount being paid? This is where you meet 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 Stine Appraisal Services Inc. will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To ascertain an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are present 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 correct and conveying 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, we use two or three approaches to 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

Here, we use information on local construction costs, labor rates and other elements to calculate 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. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers are intimately familiar with the communities in which they appraise. They innately understand the value of certain features to the residents of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the home 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 a fireplace and the subject does not, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
  • 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. At Stine Appraisal Services Inc., we are an authority when it comes to knowing the worth of real estate features in Brentwood and Williamson County neighborhoods. The sales comparison approach to value is usually awarded the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third approach to value. In this scenario, the amount of income the real estate generates is taken into consideration along with income produced by neighboring properties to derive the current value.

The Bottom Line

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valueDepending 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.Regardless, the appraised value is typically used 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 Stine Appraisal Services Inc. will help you attain the most fair and balanced property value, so you can make profitable real estate decisions.