What Goes Into an Appraisal?

Their home's purchase can be the most serious financial decision most people might ever consider. It doesn't matter if a main residence, an additional vacation home or one of many rentals, purchasing real property is a detailed transaction that requires multiple people working in concert to see it through.

You're likely to be familiar with the parties taking part in the transaction. The most familiar entity in the transaction is the real estate agent. Next, the lender provides the financial capital needed to fund the exchange. And the title company sees to it that all areas of the transaction are completed and that a clear title passes from the seller to the purchaser.

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 value of the real estate is in line with the purchase price? 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 William Pham will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain the true status of the property, it's our responsibility to first conduct a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are there and are in the shape a reasonable buyer would expect them to be. To make sure the stated square footage is accurate and illustrate the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the house.

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

Cost Approach

This is where we use information on local construction costs, the cost of labor and other factors to determine 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. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers are intimately familiar with the communities in which they appraise. They thoroughly understand the value of certain features to the residents of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the property in question. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • 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.
  • But, 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 William Pham, we are experts when it comes to knowing the worth of particular items in Houston and Harris County neighborhoods. This approach to value is typically awarded the most importance when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes used when an area has a reasonable number of rental properties. In this situation, the amount of income the real estate produces is taken into consideration along with income produced by neighboring properties to determine the current value.

Reconciliation

Examining the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property in question. It is important to note that while this amount is probably the most accurate 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. Regardless, the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to put the property on the market again. Here's what it all boils down to, an appraiser from William Pham will help you get the most fair and balanced property value, so you can make profitable real estate decisions.