Understanding Appraisals

A home purchase is the most important financial decision many of us could ever consider. Whether it's where you raise your family, a second vacation home or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple parties to make it all happen.


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

Most of the parties involved are very familiar. The real estate agent is the most known entity in the transaction. Next, the mortgage company provides the financial capital required to fund the deal. The title company ensures all details of the sale are completed and that the title is clear to pass from the seller to the purchaser is the title company.

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 professional Alabama licensed appraiser from Brown Properties will ensure you as an interested party are informed.

Appraisals begin with the property inspection

To ascertain an accurate status of the property, it's our responsibility to first conduct a thorough inspection. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are present and are in the condition a typical person would expect them to be. To make sure the stated square footage has not been misrepresented and describe the layout of the home, the inspection often includes creating a sketch of the floor plan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the property.

Following the inspection, an appraiser uses two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

Here, we analyze information on local construction costs, labor rates and other elements to determine how much it would cost to replace the property being appraised. This value usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers are intimately familiar with the neighborhoods in which they appraise. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property in question. Using knowledge of the value of certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they are more accurately in line with the features of subject property.

If, for example, the comparable has an extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath from the sales price of the comparable.
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.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Brown Properties, we are experts in knowing the worth of real estate features in Montgomery and Montgomery County neighborhoods. The sales comparison approach to value is usually given the most consideration 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 way of valuing a house. In this case, the amount of income the real estate generates is taken into consideration along with income produced by nearby properties to derive the current value.

Reconciliation

Analyzing the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of a property's value There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is typically employed 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 Brown Properties will help you attain the most fair and balanced property value, so you can make profitable real estate decisions.