Decoding the Appraisal Process

Acquiring a home can be the most important financial decision many people might ever consider. Whether it's where you raise your family, a seasonal vacation home or an investment, the purchase of real property is an involved transaction that requires multiple people working in concert to see it through.

The majority of the parties participating are very familiar. The real estate agent is the most known entity in the exchange. Next, the bank provides the financial capital needed to bankroll the exchange. The title company sees to it that all requirements of the exchange are completed and that a clear title passes to the buyer from the seller.

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So, what party is responsible for making sure the value of the real estate is in line with the purchase price? 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 Advantage Appraisal Inc. (207) 794-2018 will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first duty at Advantage Appraisal Inc. (207) 794-2018 is to inspect the property to determine its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are present and are in the condition a reasonable buyer would expect them to be. To ensure the stated size of the property has not been misrepresented and illustrate the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the house.

Following the inspection, 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 we pull information on local construction costs, labor rates and other factors to figure out how much it would cost to replace the property being appraised. This estimate usually 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 get to know the subdivisions in which they work. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the property at hand. 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 are more accurately in line with the features of subject.

  • For example, if 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.
  • However, 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.

An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Advantage Appraisal Inc. (207) 794-2018, we are experts in knowing the value of real estate features in Lincoln and Penobscot County neighborhoods. This approach to value is usually 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 method of valuing a house. In this situation, the amount of income the real estate generates is factored in with income produced by nearby properties to derive the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to document an estimated market value for the property at hand. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price 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 they could get back in the event they had to sell the property again. Here's what it all boils down to, an appraiser from Advantage Appraisal Inc. (207) 794-2018 will help you get the most fair and balanced property value, so you can make the most informed real estate decisions.