Real Property Appraisals: A Primer

Buying real estate is the biggest financial decision many people will ever make. It doesn't matter if a main residence, a second vacation property or an investment, the purchase of real property is a detailed transaction that requires multiple parties to pull it all off.

Most people are familiar with the parties having a role in the transaction. The most known entity in the transaction is the real estate agent. Next, the mortgage company provides the money required to fund the transaction. And ensuring all areas of the transaction are completed and that the title is clear to pass 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, who makes sure the property is worth the purchase price? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer could 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 Mick Taylor will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

To ascertain the true status of the property, it's our responsibility to first conduct a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the house.

Back at the office, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

Here, we gather information on local building costs, labor rates and other factors to calculate how much it would cost to build a property similar to the one being appraised. This figure often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers become very familiar with the neighborhoods in which they appraise. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.

  • For example, if the comparable property 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.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount 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. When it comes to valuing features of homes in Manzanita and Tillamook, Mick Taylor can't be beat. This approach to value is commonly awarded the most weight 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 - we may use a third approach to value. In this scenario, the amount of revenue the property produces is taken into consideration along with income produced by neighboring properties to give an indicator of the current value.

The Bottom Line

Examining the data from all approaches, the appraiser is then ready to document an estimated market value for the property in question. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of a property's valueDepending on the individual situations of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven 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. Here's what it all boils down to, an appraiser from Mick Taylor will guarantee you get the most accurate property value, so you can make profitable real estate decisions.