Real Property Appraisals: A Primer

Purchasing a house is the biggest transaction most might ever encounter. Whether it's where you raise your family, an additional vacation property or a rental fixer upper, the purchase of real property is a detailed transaction that requires multiple parties to see it through.

The majority of the parties participating are very familiar. The real estate agent is the most familiar face in the exchange. Next, the bank provides the money necessary to fund the deal. And ensuring all requirements of the exchange are completed and that the title is clear to transfer to the buyer from the seller is the title company.

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 is responsible for making sure the property is worth the purchase price? This is where the appraiser comes in. We provide an unbiased opinion 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 Justin Shimp will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first task at Justin Shimp is to inspect the property to ascertain its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are present and are in the condition a typical person would expect them to be. To ensure the stated size of the property has not been misrepresented and convey the layout of the home, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the house.

Back at the office, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, the appraiser pulls information on local building costs, labor rates and other elements to derive how much it would cost to construct a property comparable to the one being appraised. This value commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers are intimately familiar with the neighborhoods in which they work. They innately understand the value of certain features to the residents of that area. Then, the appraiser looks up recent sales in the neighborhood and finds properties which are 'comparable' to the property in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately portray the features of subject property.

  • If, for example, the comparable property has an extra half bath that the subject doesn't, the appraiser may deduct 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.

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 Justin Shimp, we are an authority when it comes to knowing the value of particular items in Pensacola and Escambia County neighborhoods. The sales comparison approach to value is usually given the most consideration when an appraisal is for a home purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third approach to value. In this case, the amount of revenue the property yields is factored in 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 stipulate an estimated market value for the property at hand. Note: While the appraised value is probably the most reliable indication of what a property is worth, it probably will not be the price at which the property closes. Depending on the specific 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.But the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Justin Shimp will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.