What is Involved in an Appraisal?
The Appraisal Inspection
The Appraiser inspects the property to understand its attributes. The Appraiser physically views aspects of the property which include such things as the location, views, number of bedrooms & bathrooms, special features, finishes and size. The inspection usually includes measuring the home and creating a sketch to determine its size.
The Sales Comparison Approach
The Appraiser will research recent sales of similar homes in the area to find properties to use as ‘comparable’ sales. Adjustments are made to account for the differences between the subject property and the comparable properties. After the differences have been adjusted for, the appraiser reconciles the adjusted sales prices of the comparable properties to develop an opinion of value. This is the generally the approach that is given the most weight.
The Cost Approach
This approach involves gathering information on the value of the land, local construction costs, the cost of labor and other factors to determine what it would cost to construct the subject property. Depreciation factors are then deducted. This approach is often given less weight, particularly with older homes that have varying depreciation factors and are in established neighborhoods.
The Income Approach
This approach can be used when there are a reasonable number of rental properties that have recently sold. This sales price information together with the rental rates can be used to determine an opinion of value based on a potential rental rate of the Subject property.
Reconciliation/Opinion of Value
After analyzing the data from all applicable approaches, the Appraiser with reconcile the information and develop an opinion of value. The Appraisal will give you valuable information to help you make an informed decision.