What Are the Components of an Appraisal?

The purchase of a home represents one of the most significant investments many of us will ever make. Whether it's a place to raise your family, an additional vacation property, or a rental project, acquiring real estate involves a meticulous financial transaction that relies on the collaboration of various parties.

While most people are familiar with the key participants in this transaction, such as the real estate agent, mortgage company, and title company, there is another crucial party involved. Enter the appraiser. At Real Estate Appraisal Services of WI, Inc., our licensed and certified professional appraisers play a vital role in ensuring that the property's value aligns with the purchase price. We provide an unbiased opinion, keeping both the buyer and seller well-informed. As an interested party, you can rely on us to provide the necessary insights for making an informed decision.

Appraisals start with the property inspection

The appraisal process begins with a thorough property inspection. Our primary responsibility is to examine the property in detail. We personally observe and verify features such as the number of bedrooms, bathrooms, location, amenities, and more, ensuring their existence and assessing their condition to meet reasonable buyer expectations. To accurately represent the size and layout of the property, we often create a floorplan sketch. During the inspection, our appraiser pays close attention to any noticeable features or defects that could impact the value of the house.

After completing the inspection, we employ two or three approaches to determine the property's value. These approaches include a sales comparison analysis, where we evaluate comparable property sales, a replacement cost calculation, and an income approach if the property is primarily used for rental purposes.

Replacement Cost

The Replacement Cost approach involves examining data on local construction costs, labor rates, and other factors to determine the approximate cost of constructing a property that closely resembles the one being appraised. This estimate typically establishes an upper limit on the potential selling price of the property. It's important to note that the Cost approach is the least commonly used method in the appraisal process.

Sales Comparison

The Sales Comparison approach is an important method used by appraisers. They familiarize themselves with the neighborhoods in which they work, gaining a thorough understanding of the specific features that hold value for homeowners in that area. The appraiser then researches recent transactions in the vicinity to find properties that are comparable to the subject property. By considering factors such as remodeled rooms, flooring types, energy-efficient features, patios, porches, and storage space, the appraiser makes adjustments to the comparable properties to align them more accurately with the subject property's features.

For instance, if a comparable property has an irrigation system while the subject property does not, the appraiser may deduct the value of the irrigation system from the sales price of the comparable home. Conversely, if the subject property has an additional half-bathroom that the comparable property lacks, the appraiser might add an amount to the comparable property's value.

After making adjustments, the appraiser reconciles the adjusted sales prices of all the comparable properties and forms an opinion of the subject property's potential selling price. The Sales Comparison approach holds significant weight in home purchase appraisals and is especially emphasized by Real Estate Appraisal Services of WI, Inc. when valuing features of homes in Princeton and Green Lake..

Valuation Using the Income Approach

A third method, the Income Approach, is occasionally used when there is a sufficient number of rental properties in the neighborhood. This approach considers the revenue generated by the property and compares it to other rents in the area to determine its current value.

Arriving at a Value Conclusion

By analyzing data from all applicable approaches, the appraiser is able to provide an estimated market value for the subject property. It's important to note that the appraisal value is not necessarily the final sales price, as various factors can influence the actual closing price. However, lenders often rely on the appraised value as a guideline to avoid loaning buyers more money than the property is truly worth. Real Estate Appraisal Services of WI, Inc. is committed to providing accurate property values, enabling clients to make well-informed real estate decisions.