Understanding Appraisals

Getting a home can be the most significant transaction many might ever consider. It doesn't matter if where you raise your family, an additional vacation property or a rental fixer upper, the purchase of real property is an involved financial transaction that requires multiple people working in concert to see it through.

Most people are familiar with the parties having a role in the transaction. The most familiar person in the exchange is the real estate agent. Next, the mortgage company provides the financial capital needed to finance the transaction. And ensuring all aspects of the transaction are completed and that the title is clear to transfer from the seller to the buyer 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, what party makes sure the value of the property is consistent with the purchase price? This is where the appraiser comes in. We provide an unbiased estimate 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 Neff Appraisal Services will ensure, you as an interested party, are informed.

Appraisals begin with the home inspection

Our first duty at Neff Appraisal Services is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the shape a typical person would expect them to be. To make sure the stated square footage is accurate and document the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the house.

Once the site has been inspected, an appraiser uses 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.

Replacement Cost

This is where we use information on local construction costs, the cost of labor and other factors to figure out how much it would cost to replace the property being appraised. This estimate usually sets the upper limit on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers become very familiar with the neighborhoods in which they appraise. They thoroughly understand the value of specific features to the residents of that area. Then, the appraiser researches recent sales in the neighborhood and finds properties which are 'comparable' to the subject 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 more accurately portray the features of subject property.

For example, if the comparable property has a fireplace and the subject doesn't, the appraiser may subtract the value of a fireplace from the sales price of the comparable.
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 true 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 Neff Appraisal Services, we are an authority in knowing the worth of particular items in Centralia and Marion County neighborhoods. This approach to value is usually given the most importance 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 method of valuing a house. In this case, the amount of revenue the property yields is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Analyzing the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price 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. The bottom line is, an appraiser from Neff Appraisal Services will help you get the most accurate property value, so you can make wise real estate decisions.