Real Property Appraisals: A Primer

Acquiring real estate can be the most important investment many of us could ever consider. It doesn't matter if where you raise your family, a second vacation home or one of many rentals, purchasing real property is a complex financial transaction that requires multiple people working in concert to see it through.

It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most familiar person in the exchange. Then, the bank provides the financial capital necessary to bankroll the transaction. The title company ensures that all requirements 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, who makes sure the value of the property is in line 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from JCC and Associates, LLC. will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at JCC and Associates, LLC. is to inspect the property to ascertain its true status. We must actually see features, 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 make sure the stated square footage is accurate and document the layout of the home, the inspection often includes creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the house.

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

Replacement Cost

Here, we analyze information on local construction costs, the cost of labor and other elements to determine how much it would cost to replace the property being appraised. This value usually sets the maximum on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers are intimately familiar with the neighborhoods in which they appraise. They innately understand the value of particular features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the property in question. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we add or subtract from each comparable's sales price so that they more accurately match the features of subject.

  • If, for example, the comparable has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace 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 might sell for can only be determined once all differences between the comps and the subject have been evaluated. At JCC and Associates, LLC., we are experts in knowing the worth of real estate features in San Juan and San Juan County neighborhoods. The sales comparison approach to value is commonly awarded the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes used when an area has a measurable number of rental properties. In this situation, 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.

Reconciliation

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valueDepending on the individual circumstances 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.Regardless, the appraised value is often employed 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. At the end of the day, an appraiser from JCC and Associates, LLC. will guarantee you attain the most accurate property value, so you can make wise real estate decisions.