An Overview of the Appraisal Process

Getting real estate can be the most important transaction most may ever encounter. Whether it's a main residence, an additional vacation property or a rental fixer upper, purchasing real property is a detailed financial 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 mortgage company provides the financial capital necessary to bankroll the exchange. The title company makes sure that all details of the exchange are completed and that the title is clear to transfer 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 value of the property is consistent with the purchase price? This is where the appraiser comes in. 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 George Company will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first duty at George Company is to inspect the property to ascertain its true status. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we identify any obvious features - or defects - that would affect the value of the house.

After the inspection, 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 the appraiser pulls information on local building costs, labor rates and other factors to derive how much it would cost to construct a property similar to the one being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers are intimately familiar with the communities in which they appraise. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of 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 more accurately match the features of subject.

  • If, for example, the comparable has an irrigation system and the subject doesn't, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
  • 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.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At George Company, we are an authority in knowing the worth of particular items in La Salle and La Salle County neighborhoods. The sales comparison approach to value is commonly given the most weight when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes used when a neighborhood has a reasonable number of rental properties. In this case, the amount of income the real estate yields is factored in with other rents in the area for comparable properties to derive the current value.

Putting It All Together

Analyzing the data from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property is worth. It'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'. 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 recover in the event they had to put the property on the market again. It all comes down to this, an appraiser from George Company will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.