Decoding the Appraisal Process

Acquiring a home is the biggest investment some people may ever consider. Whether it's where you raise your family, a second vacation property or one of many rentals, purchasing real property is an involved financial transaction that requires multiple people working in concert to see it through.

Most of the people involved are quite familiar. The real estate agent is the most known entity in the transaction. Next, the bank provides the financial capital needed to finance the deal. And ensuring all requirements of the sale are completed and that a clear title passes to the buyer from the seller is the title company.

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So, what party makes sure the value of the real estate is in line with 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 Heart of Texas Appraisers, PLLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

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, and so on, to ensure they indeed are there and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the property.

Back at the office, we use two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

This is where the appraiser analyzes information on local construction costs, the cost of labor and other factors to figure out 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 predictor of value.

Sales Comparison

Appraisers are intimately familiar with the subdivisions in which they appraise. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent sales in the area and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately portray the features of subject.

  • If, for example, the comparable 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.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

A true estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Heart of Texas Appraisers, PLLC, we are experts when it comes to knowing the worth of particular items in Arlington and Tarrant County neighborhoods. The sales comparison approach to value is typically given the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

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

Putting It All Together

Examining the data from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. Note: While the appraised value is probably the best indication of what a house is worth, it may not be the price at which the property closes. 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 typically 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 Heart of Texas Appraisers, PLLC will guarantee you discover the most accurate property value, so you can make the most informed real estate decisions.