Real Estate Appraisals: A Primer

Their home's purchase can be the most important transaction some people might ever make. It doesn't matter if where you raise your family, a second vacation home or an investment, the purchase of real property is a complex financial transaction that requires multiple parties to make it all happen.

Most people are familiar with the parties having a role in the transaction. The real estate agent is the most known person in the transaction. Then, the bank provides the financial capital required to bankroll the deal. And ensuring all details 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 real estate is worth the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer might 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 Wm. A. Bigham, Inc. will ensure, you as an interested party, are informed.

Appraisals begin with the home inspection

Our first task at Wm. A. Bigham, Inc. is to inspect the property to determine its true status. We must actually see features, 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 buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the house.

Back at the office, an appraiser uses two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

Here, we pull information on local construction costs, labor rates and other factors to determine how much it would cost to construct a property nearly identical to the one being appraised. This estimate often sets the upper limit 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 subdivisions in which they appraise. They innately understand the value of certain features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • If, for example, the comparable has an irrigation system and the subject doesn't, the appraiser may subtract the value of an irrigation system from the sales price of the comparable.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an 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 Wm. A. Bigham, Inc. , we are experts in knowing the value of particular items in Gettysburg and Adams County neighborhoods. This approach to value is usually awarded the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing a house is sometimes applied when an area has a measurable number of renter occupied properties. In this situation, the amount of revenue the property produces is factored in with income produced by similar properties to derive the current value.

Arriving at a Value Conclusion

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. Note: While this amount is probably the strongest indication of what a property is worth, it may not be the final sales price. Depending 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 typically used as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to put the property on the market again. At the end of the day, an appraiser from Wm. A. Bigham, Inc. will help you get the most accurate property value, so you can make the most informed real estate decisions.