Understanding Appraisals

Getting a home can be the most important investment many of us may ever encounter. It doesn't matter if where you raise your family, a second vacation home or an investment, purchasing real property is an involved transaction that requires multiple parties to see it through.

It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most recognizable face in the transaction. Then, the bank provides the financial capital needed to fund the exchange. And ensuring all requirements of the sale are completed and that the title is clear to pass from the seller to the buyer is the title company.

So, what party makes sure the property is worth the purchase price? 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 Sean Hoerster Appraisal Services, LLC. will ensure, you as an interested party, are informed.

The Inspection is Where an Appraisal Starts

Our first duty at Sean Hoerster Appraisal Services, LLC. is to inspect the property to ascertain its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present and are in the condition a typical 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, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

Next, after the inspection, we use two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

Here, we use information on local building costs, labor rates and other factors to figure out how much it would cost to build a property comparable to the one being appraised. This figure commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers become very familiar with the communities in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate being appraised. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately portray the features of subject property.

Say, for example, the comparable has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace 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.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to valuing features of homes, Sean Hoerster Appraisal Services, LLC. can't be beat. This approach to value is commonly awarded the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third approach to value. In this case, the amount of income the property produces is taken into consideration along with income produced by nearby properties to give an indicator of the current value.

Putting It All Together

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily what's being paid for the property 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'. But 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. It all comes down to this, an appraiser from Sean Hoerster Appraisal Services, LLC. will guarantee you get the most fair and balanced property value, so you can make wise real estate decisions.

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