What Are the Parts of an Appraisal?

A home purchase can be the biggest financial decision most of us could ever encounter. It doesn't matter if a main residence, an additional vacation property or one of many rentals, the purchase of real property is an involved financial transaction that requires multiple people working in concert to make it all happen.

You're probably familiar with the parties taking part in the transaction. The real estate agent is the most familiar person in the exchange. Then, the bank provides the money required to fund the transaction. And ensuring all areas of the transaction are completed and that a clear title passes from the seller to the purchaser is the title company.

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So, who makes sure the real estate is worth the amount being paid? 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 Big Sky Appraisal will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first task at Big Sky Appraisal is to inspect the property to determine its true status. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the shape a reasonable buyer would expect them to be. To make sure the stated square footage has not been misrepresented and document the layout of the home, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the property.

Following the inspection, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

This is where we analyze information on local construction costs, the cost of labor and other elements to determine how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers become very familiar with the communities in which they appraise. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to certain items such as upgraded appliances, additional 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.

If, for example, the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace 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.

After all differences have been accounted for, 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 associating a value with features of homes in Helena and Lewis And Clark, Big Sky Appraisal can't be beat. The sales comparison approach to value is most often awarded the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes used when an area has a reasonable number of rental properties. In this situation, the amount of income the real estate generates is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Coming Up With The Final Value

Examining the data from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. Note: While this amount is probably the strongest indication of what a property is worth, it may not be the final sales price. Depending on the individual situations of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.Regardless, the appraised value is often used 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 Big Sky Appraisal will help you get the most fair and balanced property value, so you can make profitable real estate decisions.