What Are the Components of an Appraisal?

A home purchase can be the biggest investment most people might ever consider. Whether it's a primary residence, a second vacation property or one of many rentals, the purchase of real property is a complex financial transaction that requires multiple parties to pull it all off.

Most people are familiar with the parties having a role in the transaction. The real estate agent is the most familiar face in the transaction. Next, the lender provides the financial capital needed to fund the exchange. And ensuring all requirements of the exchange 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, who makes sure the value of the property is in line with 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 Lumina Appraisal Co will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first responsibility at Lumina Appraisal Co is to inspect the property to determine its true status. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the property.

Once the site has been inspected, 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.

Replacement Cost

Here, we gather information on local building costs, the cost of labor and other factors to derive how much it would cost to replace the property being appraised. This estimate 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 are intimately familiar with the neighborhoods in which they appraise. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the real estate being appraised. By assigning a dollar value to 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.

For example, if the comparable has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable home.
But, 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 Lumina Appraisal Co, we are an authority when it comes to knowing the value of particular items in Wrightsville Beach and New Hanover County neighborhoods. The sales comparison approach to value is most often given the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third way of valuing a house is sometimes employed when a neighborhood has a measurable number of rental properties. In this situation, the amount of income the property yields is factored in with income produced by similar 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. Note: While this amount is probably the most accurate indication of what a house is worth, it probably will not be the price at which the property closes. Depending on the specific circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.But the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to sell the property again. It all comes down to this, an appraiser from Lumina Appraisal Co will help you get the most fair and balanced property value, so you can make profitable real estate decisions.