What Goes Into an Appraisal?

A home purchase is the most important transaction some people may ever encounter. Whether it's where you raise your family, an additional vacation property or an investment, the purchase of real property is a detailed financial transaction that requires multiple parties to see it through.

Practically all the participants are very familiar. The most known face in the exchange is the real estate agent. Next, the mortgage company provides the money required to bankroll the transaction. And the title company sees to it that all requirements of the sale are completed and that the title is clear to pass to the buyer from the seller.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, who makes sure the value of the property is in line with the amount being paid? In comes the appraiser. We provide an unbiased estimate of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Goedker Appraisal Services will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

To ascertain an accurate status of the property, it's our responsibility to first perform a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the house.

Following 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

Here, we use information on local construction costs, labor rates and other elements to calculate how much it would cost to replace the property being appraised. This figure usually sets the maximum on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers become very familiar with the communities in which they work. They innately understand the value of specific features to the residents of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the home being appraised. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately portray the features of subject.

  • For example, if the comparable has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable home.
  • 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.

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 Goedker Appraisal Services, we are experts in knowing the worth of particular items in Baxter and Crow Wing County neighborhoods. This approach to value is commonly awarded the most consideration when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third method of valuing a house is sometimes applied when an area has a measurable number of rental properties. In this situation, the amount of revenue the real estate produces is factored in with income produced by nearby properties to derive the current value.

Arriving at a Value Conclusion

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. Here's what it all boils down to, an appraiser from Goedker Appraisal Services will help you discover the most accurate property value, so you can make the most informed real estate decisions.