Real Estate Appraisals: A Primer

A home purchase is the most important investment some could ever encounter. Whether it's a primary residence, a second vacation home or a rental fixer upper, purchasing real property is an involved financial transaction that requires multiple parties to make it all happen.

Most of the participants are quite familiar. The most familiar entity in the exchange is the real estate agent. Then, the mortgage company provides the money required to fund the exchange. The title company makes sure that all areas of the transaction are completed and that a clear title transfers from the seller to the buyer.

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

So, what party makes sure the real estate is worth the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer might 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 Dan Craft Appraisals will ensure, you as an interested party, are informed.

Inspecting the subject property

To determine an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are present and are in the shape a reasonable person would expect them to be. To ensure the stated size of the property is accurate and document the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the property.

Once the site has been inspected, we use two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, the appraiser analyzes information on local building costs, labor rates and other elements to derive how much it would cost to replace the property being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers become very familiar with the communities in which they work. They innately understand the value of certain 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 property in question. By assigning a dollar value to 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 are more accurately in line with the features of subject.

  • Say, for example, the comparable has an extra half bath that the subject doesn't, the appraiser may deduct the value of that half bath from the sales price of the comparable home.
  • However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Dan Craft Appraisals, we are an authority in knowing the worth of particular items in Knoxville and Knox County neighborhoods. This approach to value is most often awarded the most consideration when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes applied when a neighborhood has a measurable number of rental properties. In this situation, the amount of income the real estate produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Coming Up With The Final Value

Combining information from all approaches, the appraiser is then ready to state an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valueIt's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to sell the property again. The bottom line is, an appraiser from Dan Craft Appraisals will help you get the most accurate property value, so you can make wise real estate decisions.