Real Estate Appraisals: A Primer

A home purchase can be the largest transaction some of us could ever consider. Whether it's a primary residence, an additional vacation home or an investment, the purchase of real property is a detailed financial transaction that requires multiple parties to pull it all off.

Most of the parties involved are quite familiar. The real estate agent is the most recognizable entity in the transaction. Next, the bank provides the financial capital required to bankroll the transaction. And the title company ensures that all areas of the sale are completed and that the title is clear to transfer to the buyer from the seller.

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 value of the property is consistent with the purchase price? This is where the appraiser comes in. 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 Alpha-Omega Appraisal Service, Inc. will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first duty at Alpha-Omega Appraisal Service, Inc. is to inspect the property to ascertain its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the condition a reasonable person would expect them to be. To make sure the stated square footage is accurate and document the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.

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

Replacement Cost

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

Sales Comparison

Appraisers become very familiar with the subdivisions in which they appraise. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject at hand. Using knowledge of the value of 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 match the features of subject.

  • For example, if the comparable property has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
  • However, 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.

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 Alpha-Omega Appraisal Service, Inc., we are experts when it comes to knowing the worth of particular items in Myrtle Beach and Horry County neighborhoods. This approach to value is commonly awarded the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes used when a neighborhood has a reasonable number of renter occupied properties. In this case, the amount of income the property generates is factored in with income produced by comparable properties to determine the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. Note: While the appraised value is probably the most reliable indication of what a house is worth, it probably will 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'. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to put the property on the market again. At the end of the day, an appraiser from Alpha-Omega Appraisal Service, Inc. will guarantee you discover the most accurate property value, so you can make wise real estate decisions.