Home Appraisals: A Primer

Their home's purchase can be the biggest transaction most of us will ever make. Whether it's a main residence, a seasonal vacation property or a rental fixer upper, purchasing 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 real estate agent is the most known face in the transaction. Then, the bank provides the financial capital required to fund the exchange. The title company sees to it that all areas 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 real estate is consistent with the amount being paid? 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 Music City Appraisals, Inc. will ensure, you as an interested party, are informed.

Inspecting the subject property

To determine the true status of the property, it's our responsibility to first conduct a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really exist and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is correct and conveying the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the property.

Next, after the inspection, we use two or three approaches to determining the value of real property: a paired sales analysis, 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, labor rates and other factors to ascertain how much it would cost to replace the property being appraised. This figure commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers get to know the communities in which they work. They innately understand the value of specific features to the people of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the subject in question. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately match the features of subject property.

For example, if the comparable property has an extra half bath that the subject does not, the appraiser may subtract the value of that half bath from the sales price of the comparable.
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 Music City Appraisals, Inc., we are an authority when it comes to knowing the value of particular items in Franklin and Williamson County neighborhoods. This approach to value is usually given the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes employed when a neighborhood has a measurable number of renter occupied properties. In this case, the amount of income the property produces is taken into consideration along with income produced by similar properties to give an indicator of the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the property in question. Note: While the appraised value is probably the most reliable indication of what a house is worth, it may not be the final sales price. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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 get back in the event they had to sell the property again. The bottom line is, an appraiser from Music City Appraisals, Inc. will guarantee you discover the most fair and balanced property value, so you can make the most informed real estate decisions.