Real Property Appraisals: A Primer

Getting real estate can be the largest transaction some of us might ever make. It doesn't matter if it's a primary residence, a seasonal vacation home or a rental fixer upper, purchasing real property is a detailed financial transaction that requires multiple parties to make it all happen.

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


Practically all the participants are quite familiar. The real estate agent is the most familiar entity in the exchange. Next, the mortgage company provides the money necessary to bankroll the deal. 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.

So who makes sure the value of the real estate is in line with the purchase price?   In comes the appraiser.   We provide an unbiased opinion of what a buyer could expect to pay - or a seller receive - for a property, where both buyer and seller are informed parties. A professional Florida licensed appraiser from Venture Appraisal, Inc. will ensure you as an interested party are informed.

The inspection is where an appraisal begins

To ascertain an accurate status of the property, it's our duty to first complete a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the condition a reasonable buyer would expect them to be. To make sure the stated size of the property has not been misrepresented and describe the layout of the home, the inspection often requires creating a sketch of the floor plan. Most importantly, we identify any obvious features - or defects - that would affect the value of the property.

After the inspection, an appraiser employs two or three approaches when determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

Here, the appraiser uses information on local building costs, labor rates and other factors to ascertain 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.

Sales Comparison

Appraisers become very familiar with the communities in which they work. We innately understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject.

  • For example, if the comparable 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.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount 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. The sales comparison approach to value is commonly awarded the most importance 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 - the appraiser may use an additional way of valuing a house. In this scenario, the amount of revenue the real estate yields is taken into consideration along with income produced by neighboring properties to give an indicator of the current value.

Reconciliation

Examining the data from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. Note: While this amount is probably the strongest indication of what a house would sell for in an open market, it probably will not be the final sales price. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to sell the property again. The bottom line is: An appraiser from Venture Appraisal, Inc. will help you discover the most fair and balanced property value, so you can make wise real estate decisions.