Real Estate Appraisals: A Primer

Buying a house is the most significant financial decision some people will ever consider.Whether it's where you raise your family, a second vacation property or an investment, purchasing real property is a complex financial transaction that requires multiple people working in concert 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.

Practically all the parties participating are very familiar. The real estate agent is the most known face in the exchange. Then, the lender provides the financial capital necessary to finance the transaction. The title company ensures that all requirements of the transaction are completed and that a clear title passes from the seller to the purchaser.

So what party makes sure the value of the property is consistent with the amount being paid? In comes the appraiser. We provide an unbiased 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. A professional Massachusetts licensed appraiser from Pioneer Valley Appraisal 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 see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the floor plan, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the property.

After the inspection, an appraiser employs two or three approaches when determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, we use information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers can tell you a lot about the subdivisions in which they appraise. We thoroughly understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate being appraised. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, an additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately match the features of subject property.

If, for example, the comparable property has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
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.

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. This approach to value is commonly given the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional method of valuing a house. In this case, the amount of revenue the property generates is taken into consideration along with income produced by comparable properties to derive the current value.

The Bottom Line

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. It is important to note that while this amount is probably the strongest indication of what a property would sell for in an open market, it may not be the price at which the property closes. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. 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 sell the property again. Here's what it all boils down to: An appraiser from Pioneer Valley Appraisal will help you discover the most fair and balanced property value, so you can make wise real estate decisions.