What Are the Components of an Appraisal?

A home purchase is the most significant financial decision some may ever consider. Whether it's where you raise your family, a second vacation property or one of many rentals, the purchase of real property is an involved transaction that requires multiple parties to make it all happen.

You're likely to be familiar with the parties having a role in the transaction. The most known face in the exchange is the real estate agent. Then, the bank provides the financial capital necessary to finance the deal. And ensuring all aspects of the sale are completed and that the title is clear to transfer to the buyer from the seller is the title company.

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So, what party makes sure the value of the real estate is in line with the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from DCH Appraisals will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

Our first task at DCH Appraisals is to inspect the property to determine its true status. We must actually view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are there and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser looks for 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.

Replacement Cost

Here, the appraiser uses information on local construction costs, the cost of labor and other elements to determine how much it would cost to build a property similar to the one being appraised. This figure usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers are intimately familiar with the neighborhoods in which they work. They innately understand the value of particular features to the people of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the property in question. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.

For example, if the comparable property has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
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.

A valid estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At DCH Appraisals, we are an authority when it comes to knowing the value of real estate features in Vancouver and Clark County neighborhoods. The sales comparison approach to value is typically 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 - we may use a third way of valuing a house. In this scenario, the amount of revenue the real estate yields is factored in with other rents in the area for comparable properties to derive the current value.

The Bottom Line

Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not always the final sales price even though it is likely the best indication of a property's valueDepending on the individual 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.Regardless, the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. At the end of the day, an appraiser from DCH Appraisals will guarantee you get the most fair and balanced property value, so you can make profitable real estate decisions.