Understanding the appraisal process

Buying a house is the biggest investment some of us will ever encounter. Whether it's a main residence, a seasonal vacation home, or one of many rentals, the purchase of real property is a complex transaction that requires multiple parties to see it through.

 Most people are familiar with the parties having a role in the transaction. The most recognizable face in the transaction is the real estate agent. Then the mortgage company provides the money necessary to fund the transaction. The title company sees to it that all details of the transaction are completed and that a clear title transfers from the seller to the buyer.

So who's responsible for making sure the value of the property is consistent with the amount being paid?   This is where you meet the appraiser.   We provide 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 Missouri licensed appraiser from Holman Valuation Group, LLC will ensure that you as an interested party are informed.

Appraisals start with the property inspection

Our first duty at Holman Valuation Group, LLC is to inspect the property to determine its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the condition a typical buyer would expect them to be. To verify that the stated square footage is accurate and to illustrate the layout of the property, the inspection often entails creating a sketch of the floor plan. Most importantly, the appraiser looks for any obvious features or defects that would affect the value of the property.

Once the site has been inspected, an appraiser employs two or three approaches when determining the value of real property: cost approach, sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, we gather information on local building costs, labor rates and other elements to ascertain how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers become very familiar with the communities in which they appraise. We thoroughly understand the value of specific features to the people of that area. Then, the appraiser looks up recent sales in the area and finds properties which are comparable to the property at hand. Using knowledge of the value of certain items such as square footage, additional bathrooms, hardwood floors, fireplaces, or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.

  • Say, for example, the comparable 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.
  • 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.
A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. The sales comparison approach to value is usually given the most weight when an appraisal is for a home purchase.

Valuation using the Income Approach

​A third method of valuing real estate is sometimes applied when an area has a reasonable number of rental properties. In this case, the amount of revenue the property produces is taken into consideration along with other rents in the area for comparable properties to derive the current value.

The bottom line

Examining the data from all approaches, the appraiser is then ready to state an estimated market value for the subject property. It is important to note that while this amount is probably the most reliable indication of what a house would sell for in an open market, it may not be the final sales price. Depending on the individual situations of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to sell the property again. At the end of the day: An appraiser from Holman Valuation Group, LLC will help you get the most fair and balanced property value, so you can make wise real estate decisions.