What Goes Into an Appraisal?

Purchasing real estate is the most significant investment some of us could ever consider. It doesn't matter if a main residence, an additional vacation property or an investment, the purchase of real property is a detailed transaction that requires multiple people working in concert to make it all happen.

Most of the participants are very familiar. The most known person in the transaction is the real estate agent. Next, the bank provides the money required to bankroll the transaction. And ensuring all aspects of the transaction are completed and that the title is clear to pass to the buyer from the seller is the title company.

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

So, what party is responsible for making 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Powell Appraisal Services will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first task at Powell Appraisal Services 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, living areas, etc, to ensure they really are present and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is correct and conveying the layout of the property. Most importantly, we identify any obvious features - or defects - that would affect the value of the house.

Back at the office, we use two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, we pull information on local construction costs, the cost of labor and other elements to determine how much it would cost to build a property comparable to the one being appraised. This figure often sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers can tell you a lot about the neighborhoods in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser looks up recent sales in the vicinity and finds properties which are 'comparable' to the real estate being appraised. 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 add or subtract from each comparable's sales price so that they more accurately match the features of subject.

  • For example, if the comparable has an extra half bath that the subject doesn't, the appraiser may deduct the value of that half bath 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.

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. At Powell Appraisal Services, we are experts in knowing the value of real estate features in Rockville and Montgomery County neighborhoods. This approach to value is most often awarded 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 a third approach to value. In this situation, the amount of income the real estate yields is factored in with income produced by neighboring properties to give an indicator of the current value.

Arriving at a Value Conclusion

Examining the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. 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. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. Here's what it all boils down to, an appraiser from Powell Appraisal Services will help you get the most fair and balanced property value, so you can make the most informed real estate decisions.