What Are the Parts of an Appraisal?

Getting real estate can be the most important financial decision some of us will ever encounter. Whether it's a primary residence, an additional vacation property or an investment, the purchase of real property is a complex financial transaction that requires multiple parties to make it all happen.

Most people are familiar with the parties taking part in the transaction. The real estate agent is the most known entity in the exchange. Next, the bank provides the financial capital required to finance the deal. The title company ensures that all aspects of the sale are completed and that the title is clear to pass from the seller to the buyer.

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So, who's responsible for making sure the value of the real estate is consistent with the purchase price? In comes the appraiser. We provide an unbiased opinion 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 Di Cicco & Associates will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

To determine the true status of the property, it's our responsibility to first perform a thorough inspection. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the condition a typical buyer would expect them to be. To make sure the stated size of the property has not been misrepresented and describe the layout of the home, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.

Following 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

This is where the appraiser analyzes information on local construction costs, the cost of labor and other factors to determine how much it would cost to construct a property comparable to the one being appraised. This estimate commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers are intimately familiar with the communities in which they appraise. They innately understand the value of particular 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 home in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject.

If, for example, the comparable property has an extra half bath that the subject does not, the appraiser may deduct the value of that half bath from the sales price of the comparable.
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 Di Cicco & Associates, we are experts when it comes to knowing the value of real estate features in Palm Beach Garden and Palm Beach County neighborhoods. This approach to value is most often awarded the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third approach to value. In this case, the amount of income the property yields is factored in with income produced by comparable properties to determine the current value.

The Bottom Line

Examining the data from all approaches, the appraiser is then ready to put down an estimated market value for the property in question. Note: While the appraised value is probably the most accurate indication of what a property 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 employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to sell the property again. The bottom line is, an appraiser from Di Cicco & Associates will help you get the most accurate property value, so you can make the most informed real estate decisions.