Home Appraisals: A Primer

Getting real estate is the largest investment some of us could ever encounter. Whether it's a primary residence, a seasonal vacation home or an investment, purchasing real property is an involved transaction that requires multiple parties to pull it all off.

Most of the parties participating are very familiar. The real estate agent is the most known person in the transaction. Then, the bank provides the money necessary to bankroll the transaction. The title company sees to it that all areas of the sale are completed and that the title is clear to pass to the buyer from the seller.

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 in line with the amount being paid? In comes the appraiser. We provide an unbiased opinion 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 Mark Linde & Associates will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first task at Mark Linde & Associates is to inspect the property to determine its true status. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the condition a typical buyer would expect them to be. To make sure the stated square footage has not been misrepresented and describe the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the property.

After the inspection, 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.

Cost Approach

Here, we analyze information on local building costs, the cost of labor and other factors to figure out how much it would cost to replace the property being appraised. This estimate usually sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Analyzing Comparable Sales

Appraisers can tell you a lot about the subdivisions in which they work. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • Say, for example, the comparable property has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system 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.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Mark Linde & Associates, we are experts when it comes to knowing the worth of particular items in Little Rock and Pulaski County neighborhoods. The sales comparison approach to value is most often given the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes applied when a neighborhood has a reasonable number of rental properties. In this case, the amount of revenue the real estate generates is factored in with income produced by comparable properties to determine 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 property in question. It is important to note that while this amount is probably the strongest indication of what a house is worth, it may not be the final sales price. It's not uncommon for prices to 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 the property is actually worth. It all comes down to this, an appraiser from Mark Linde & Associates will guarantee you get the most accurate property value, so you can make profitable real estate decisions.