Phase 1 – Define the Assignment
Phase 2 – Define Your Scope of Work
Phase 3 – Data Collection
Phase 4 – Apply Applicable Approaches to Value
Phase 5 – Determine Value Based on Approaches
Phase 6 – Report on Value Determination
The inspection is where an appraisal starts. Our first task is to inspect the property to determine its true status. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are present and are in the shape a typical buyer would expect them to be. To make sure the stated square footage is accurate and illustrate the layout of the home, the inspection often entails creating a sketch of the floor plan. Most importantly, we identify any obvious features or defects that would have an impact on the value of the property.
Following the inspection, an appraiser employs: one, two or three approaches when determining the value of real property. The three approaches to value are the: Sales Comparison Approach, Cost Approach and Income approach when rental properties are prevalent.
Sales Comparison Approach
Appraisers are familiar with the communities in which they work. We understand the value of specific features to the market. Then, the appraiser looks up recent sales in the vicinity and finds properties which are 'comparable' to the property being appraised. By assigning a dollar value to certain items such as updated kitchens or baths, types of flooring, energy efficient items, patios and porches, We add or subtract from each comparable's sales price so that they more accurately represent the features of subject. If, for example, the comparable property has a garage and the subject doesn't, the appraiser may deduct the value of a garage from the sales price of the comparable. However, if the subject has an extra bathroom and the comparable does not, the appraiser might add an amount to the comparable property. The sales comparison approach to value is typically awarded the most consideration when an appraisal is for a home sale.
This is where we use information on local building costs, the cost of labor and other factors to figure out how much it would cost to replace the property being appraised. This figure often sets the upper limit on what a property would sell for. It's also the least used method and is most reliable on newly constructed homes.
In the case of income producing properties the appraiser may use an additional approach to value. In this scenario, the amount of income the real estate yields is taken into consideration along with income produced by similar properties to determine the current value.
Putting It All Together. Examining the data from all applicable approaches, the appraiser is then ready to state an opinion of market value for the property. Note: While the appraised value is probably the strongest indication of what a house would sell for in an open market, most likely it will not be the exact price. There are always mitigating factors such as the seller's desire to get out of the property, urgency or limited inventory that may adjust the final price up or down. But the appraised value is used a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open market..