Understanding Appraisals

A home purchase is the largest financial decision most of us will ever make. It doesn't matter if a main residence, a seasonal vacation home or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple parties to pull it all off.

It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most familiar person in the transaction. Next, the mortgage company provides the financial capital needed to fund the transaction. And ensuring all areas of the sale are completed and that a clear title passes 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, who makes sure the real estate is worth the purchase price? 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 Ward & Company will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain the true status of the property, it's our duty to first perform a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the shape a reasonable person would expect them to be. To make sure the stated square footage has not been misrepresented and illustrate the layout of the home, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the house.

Following the inspection, an appraiser uses 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

Here, we pull information on local building costs, the cost of labor and other factors to ascertain how much it would cost to replace the property being appraised. This figure often sets the upper limit on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers can tell you a lot about the neighborhoods in which they appraise. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate being appraised. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, 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 subtract the value of a fireplace from the sales price of the comparable.
  • However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount 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 Ward & Company, we are an authority when it comes to knowing the worth of real estate features in Fulshear and Fort Bend County neighborhoods. The sales comparison approach to value is most often awarded the most consideration when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes employed when an area has a reasonable number of renter occupied properties. In this case, the amount of revenue the real estate generates is factored in with other rents in the area for comparable properties to derive the current value.

The Bottom Line

Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valuePrices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from Ward & Company will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.