Real Estate Appraisals: A Primer

Their home's purchase is the most serious transaction many people will ever make. It doesn't matter if where you raise your family, a seasonal vacation home or a rental fixer upper, purchasing real property is a complex financial transaction that requires multiple people working in concert to pull it all off.

You're likely to be familiar with the parties taking part in the transaction. The most familiar person in the exchange is the real estate agent. Next, the bank provides the financial capital necessary to fund the deal. The title company makes sure that all requirements of the transaction are completed and that the title is clear to pass to the buyer from the seller.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, who makes sure the real estate 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Kim Carr will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain an accurate status of the property, it's our responsibility to first conduct a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.

After 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.

Cost Approach

Here, we gather information on local building costs, labor rates and other elements to figure out how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers are intimately familiar with the subdivisions in which they work. They innately understand the value of specific features to the residents of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the real estate 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 adjust the comparable properties so that they more accurately portray the features of subject property.

  • If, for example, the comparable has a fireplace and the subject doesn't, the appraiser may subtract the value of a fireplace from the sales price of the comparable.
  • However, 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.

An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Kim Carr, we are an authority when it comes to knowing the value of real estate features in Bella Vista and Benton County neighborhoods. The sales comparison approach to value is commonly given the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes applied when an area has a measurable number of rental properties. In this case, the amount of income the real estate yields is taken into consideration along with income produced by neighboring properties to determine the current value.

Coming Up With The Final Value

Examining the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is often used 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 put the property on the market again. The bottom line is, an appraiser from Kim Carr will guarantee you attain the most fair and balanced property value, so you can make profitable real estate decisions.