Understanding Appraisals

Getting a home is the most significant investment many of us will ever consider. Whether it's where you raise your family, an additional vacation home or an investment, purchasing real property is a detailed financial transaction that requires multiple parties to pull it all off.

Practically all the participants are quite familiar. The most familiar person in the exchange is the real estate agent. Next, the bank provides the financial capital necessary to bankroll the exchange. And ensuring all areas of the exchange are completed and that a clear title transfers to the buyer from the seller is the title company.

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So, who's responsible for making sure the property is worth 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from TLM Appraisal Services will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To determine an accurate status of the property, it's our responsibility to first perform a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are present and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and conveying the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the property.

Once the site has been inspected, 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 pull information on local construction costs, the cost of labor and other elements to derive how much it would cost to construct a property nearly identical to the one being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers are intimately familiar with the subdivisions in which they appraise. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), 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 has a storm shelter and the subject does not, the appraiser may deduct the value of a storm shelter 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.

An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to knowing the true worth of features of homes in Orlando and Orange, TLM Appraisal Services can't be beat. The sales comparison approach to value is most often given the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third way of valuing a house is sometimes used when a neighborhood has a reasonable number of renter occupied properties. In this situation, the amount of revenue the property generates is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

Coming Up With The Final Value

Analyzing the data from all approaches, the appraiser is then ready to document an estimated market value for the subject property. Note: While this amount is probably the most accurate indication of what a property is worth, it may not be the price at which the property closes. It's not uncommon for prices to 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 the property is actually worth. The bottom line is, an appraiser from TLM Appraisal Services will help you discover the most accurate property value, so you can make the most informed real estate decisions.