What Are the Components of an Appraisal?

Purchasing real estate is the most important financial decision most could ever make. It doesn't matter if a primary residence, a seasonal vacation home or a rental fixer upper, purchasing real property is a complex transaction that requires multiple people working in concert to pull it all off.

The majority of the participants are very familiar. The most recognizable person in the exchange is the real estate agent. Next, the bank provides the money needed to finance the transaction. And the title company ensures that all details of the sale are completed and that the title is clear to transfer to the buyer from the seller.

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So, who's responsible for making sure the real estate is worth the purchase price? This is where you meet 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 Gordon Appraisal Services will ensure, you as an interested party, are informed.

Appraisals begin with the home inspection

To determine the true status of the property, it's our responsibility to first conduct a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the house, 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.

Following 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

This is where we gather information on local building costs, the cost of labor and other elements to derive how much it would cost to construct a property similar to the one being appraised. This estimate usually sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers can tell you a lot about the subdivisions in which they work. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.

  • For example, if the comparable has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
  • 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 Gordon Appraisal Services, we are an authority in knowing the value of real estate features in Lakeland and Polk County neighborhoods. The sales comparison approach to value is commonly awarded the most weight when an appraisal is for a real estate purchase.

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 scenario, the amount of income the real estate generates is factored in with other rents in the area for comparable properties to give an indicator of the current value.

The Bottom Line

Analyzing the data from all 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 what's being paid for the property even though it is likely the best indication of what a property is worth. 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.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 recover in case they had to sell the property again. Here's what it all boils down to, an appraiser from Gordon Appraisal Services will guarantee you discover the most accurate property value, so you can make wise real estate decisions.