What Are the Components of an Appraisal?

Acquiring real estate is the largest investment some of us could ever encounter. It doesn't matter if where you raise your family, a second vacation property or one of many rentals, purchasing real property is an involved financial transaction that requires multiple parties to make it all happen.

It's likely you are familiar with the parties having a role in the transaction. The most familiar entity in the transaction is the real estate agent. Then, the bank provides the financial capital necessary to fund the deal. The title company ensures that all details 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 property is worth 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 begin with the home inspection

Our first duty at Di Cicco & Associates is to inspect the property to determine its true status. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are present and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct 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.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

Here, the appraiser gathers information on local building costs, the cost of labor and other factors to ascertain how much it would cost to replace the property being appraised. This figure usually sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers get to know the subdivisions in which they work. They thoroughly understand the value of certain features to the people of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate being appraised. By assigning a dollar value to 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 portray the features of subject property.

For example, if the comparable has an irrigation system and the subject doesn't, 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.

In the end, 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 Palm Beach Garden and Santa Rosa, Di Cicco & Associates can't be beat. This approach to value is typically awarded the most consideration when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third method of valuing a house is sometimes used when an area has a measurable number of rental properties. In this case, the amount of revenue the real estate yields is taken into consideration along with income produced by similar properties to derive 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. It is important to note that while the appraised value is probably the strongest indication of what a property is worth, it probably will not be the price at which the property closes. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing price up or down. Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to sell the property again. The bottom line is, an appraiser from Di Cicco & Associates will help you discover the most fair and balanced property value, so you can make wise real estate decisions.