Understanding Appraisals

One's home purchase is the biggest financial decision many of us will ever consider. It doesn't matter if it's a main residence, a second vacation property or a rental fixer upper, purchasing real property is a complex transaction that requires multiple parties to pull it all off.

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The majority of the participants are quite familiar. The real estate agent is the most recognizable person in the exchange. Next, the bank provides the financial capital needed to fund the exchange. Ensuring all areas of the exchange are completed and that the title is clear to transfer from the seller to the purchaser is the title company.

So who's responsible for making sure the value of the property is in line with the purchase price?   In comes the appraiser.   We provide an unbiased opinion 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 professional New York licensed appraiser from Eagle Appraisals Inc will ensure you as an interested party are informed.

The inspection is where an appraisal begins

Our first duty at Eagle Appraisals Inc is to inspect the property to determine its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the shape a typical person would expect them to be. To make sure the stated size of the property has not been misrepresented and illustrate the layout of the home, the inspection often includes creating a sketch of the floor plan. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the property.

Once the site has been inspected, we use two or three approaches when determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

This is where the appraiser uses information on local building costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This estimate commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers become very familiar with the neighborhoods in which they work. We innately understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the real estate at hand. 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 more accurately match the features of subject.

  • If, for example, the comparable property has a fireplace and the subject doesn't, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
  • 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. The sales comparison approach to value is most often awarded the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this scenario, the amount of income the real estate produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Putting It All Together

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property could sell for in an open market. Depending on the individual 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 typically used as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace. The bottom line is: An appraiser from Eagle Appraisals Inc will help you attain the most accurate property value, so you can make wise real estate decisions.