Real Property Appraisals: A Primer

Acquiring a home is the largest investment some of us could ever make. It doesn't matter if a main residence, a seasonal vacation property or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple parties to pull it all off.

Most of the parties involved are very familiar. The most recognizable person in the exchange is the real estate agent. Then, the bank provides the money required to fund the exchange. And ensuring all aspects of the sale are completed and that the title is clear to transfer to the buyer from the seller is the title company.

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So, who's responsible for making sure the property is worth the amount being paid? This is where you meet the appraiser. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Appraisal Services of McLean County will ensure, you as an interested party, are informed.

Appraisals begin with the home inspection

To determine the true status of the property, it's our responsibility to first perform a thorough inspection. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present and are in the shape a typical person would expect them to be. To ensure the stated square footage has not been misrepresented and illustrate the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the property.

Once the site has been inspected, we use 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.

Cost Approach

This is where the appraiser gathers information on local construction costs, labor rates and other elements to determine how much it would cost to construct a property similar to the one being appraised. This figure commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers get to know the communities in which they work. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.

  • If, for example, the comparable has a fireplace and the subject doesn't, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to knowing the true worth of features of homes in Normal and McLean, Appraisal Services of McLean County can't be beat. This approach to value is commonly awarded the most consideration when an appraisal is for a real estate purchase.

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 scenario, the amount of income the property yields is factored in with other rents in the area for comparable properties to determine the current value.

Putting It All Together

Analyzing the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. Note: While the appraised value is probably the best indication of what a property is worth, it probably will not be the final sales price. Depending on the specific 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.But the appraised value is often employed 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 put the property on the market again. It all comes down to this, an appraiser from Appraisal Services of McLean County will help you discover the most accurate property value, so you can make profitable real estate decisions.