Understanding Appraisals

Their home's purchase can be the most important investment some people might ever consider. It doesn't matter if a main residence, an additional vacation property or an investment, purchasing real property is a detailed financial transaction that requires multiple people working in concert to see it through.

Most of the people involved are very familiar. The most known entity in the transaction is the real estate agent. Then, the bank provides the money needed to fund the deal. And ensuring all areas of the transaction are completed and that a clear title passes from the seller to the purchaser 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 real estate is worth the amount being paid? This is where you meet 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 licensed, certified, professional appraiser from Lauren J. Lamm 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 responsibility to first conduct a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are there and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the house.

After the inspection, an appraiser uses two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where we use information on local construction costs, the cost of labor and other factors to ascertain how much it would cost to replace the property being appraised. This value often sets the maximum on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers become very familiar with the neighborhoods in which they appraise. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate in question. By assigning a dollar value to 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.

Say, for example, 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 home.
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.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Lauren J. Lamm, we are experts in knowing the worth of real estate features in San Marcos and Hays County neighborhoods. The sales comparison approach to value is usually awarded the most weight 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 reasonable number of rental properties. In this scenario, the amount of income the property produces is factored in with income produced by comparable properties to derive the current value.

The Bottom Line

Combining information from all applicable approaches, the appraiser is then ready to state 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. 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 often employed 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 put the property on the market again. The bottom line is, an appraiser from Lauren J. Lamm will help you get the most fair and balanced property value, so you can make wise real estate decisions.