Understanding the Appraisal Process

Buying a house can be the most serious transaction many people might ever consider. Whether it's where you raise your family, an additional vacation home or an investment, purchasing real property is a complex transaction that requires multiple parties to see it through.

The majority of the parties participating are very familiar. The most recognizable entity in the exchange is the real estate agent. Then, the bank provides the financial capital needed to finance the exchange. And ensuring all aspects of the sale are completed and that the title is clear to transfer from the seller to the purchaser is the title company.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, who makes sure the value of the real estate is in line with the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer could 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 OB Residential Appraisals will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at OB Residential Appraisals is to inspect the property to determine its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the shape a reasonable person would expect them to be. To make sure the stated size of the property is accurate and illustrate the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the property.

Back at the office, an appraiser uses two or three approaches to determining the value of real property: sales comparison 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 calculate how much it would cost to replace the property being appraised. This figure often sets the maximum on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers can tell you a lot about the neighborhoods in which they work. They innately understand the value of particular features to the people of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the real estate being appraised. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject.

  • For example, if the comparable property has an irrigation system and the subject does not, 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 putting a value on features of homes in Dallas and Dallas, OB Residential Appraisals is second to none. The sales comparison approach to value is usually awarded the most weight 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 situation, the amount of revenue the real estate yields is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Putting It All Together

Analyzing the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While the appraised value is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. But the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from OB Residential Appraisals will guarantee you attain the most accurate property value, so you can make wise real estate decisions.