Purchasing a home is the biggest and most important financial decision some may ever consider. Whether it’s where you raise your family, a second vacation home or a rental fixer upper, the purchase of real property requires multiple people working in concert to see it through.
Professional Appraisers of Texas provides an unbiased estimate 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 professional Texas certified residential appraiser from Professional Appraisers of Texas will ensure you as an interested party are informed.
The Uniform Standards of Professional Appraisal Practice, as promulgated by the Appraisal Standards Board of The Appraisal Foundation, defines an appraisal as the act or process of developing an opinion of value.
Inspecting the Subject Property
To determine the true status of the property, it’s our responsibility to first complete a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are there and are in the shape a reasonable person would expect them to be. To ensure the stated square footage is accurate and describe the layout of the house, the inspection often requires creating a sketch of the floor plan. Most importantly, we identify any obvious amenities – or defects – that would have an impact on the value of the house.
Approaches to Value – Just How Do We Determine What a Home is Worth?
This is one of the most commonly asked questions an appraiser hears throughout their career. There are three approaches to value in residential real property appraisal:
- Sales Comparison Approach
- Cost Approach
- Income Approach
Sales Comparison Approach
The sales comparison approach is the most widely used and accepted approach to value in residential real property appraisal. This approach to value is based on what similar properties in the subject’s market have sold for recently, with appropriate adjustments for living area, amenities, acreage or lot size and so on. It is in making these adjustments that the expertise of an appraiser becomes necessary in order to accurately estimate the market value of a property. How does an appraiser know what adjustments to make and how much to make them for? Good question. Appraisers typically use what is called a paired sales analysis. Appraisers can tell you a lot about the neighborhoods in which they work. We thoroughly understand the value of specific features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are ‘comparable’ to the home in question. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), 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 subtract the value of a fireplace from the sales price of the comparable home. Or, 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.
After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comparable sales and then derives an opinion of what the subject could sell for. This approach to value is commonly awarded the most importance when an appraisal is for a real estate sale.
Here, the appraiser analyzes information on local construction costs, labor rates and other elements to ascertain how much it would cost to replace the property being appraised. In addition, the appraiser obtains a site or lot value for the property. By adding the cost of the improvements, minus any depreciation, plus the land or lot value, the appraiser is able to come up with a value based on the cost approach.
Valuation Using the Income Approach
A third way of valuing a property is sometimes employed when a neighborhood has a significant and measurable number of rental properties. In this situation, the amount of revenue the property produces is taken into consideration along with other rents in the area for comparable properties in order to determine the current value.
Putting It All Together
Examining the data from all approaches, the appraiser is then ready to reconcile all of the data and derive an estimated market value for the property at hand. At the end of the day: An appraiser from Professional Appraisers of Texas will guarantee you discover the most fair and balanced property value, so you can make profitable and knowledgeable real estate decisions.