Real Estate Appraisals: A Primer

Purchasing real estate can be the biggest investment most people could ever make. Whether it's where you raise your family, an additional vacation property or an investment, purchasing real property is a detailed transaction that requires multiple people working in concert to make it all happen.

You're probably familiar with the parties taking part in the transaction. The most known face in the exchange is the real estate agent. Next, the lender provides the financial capital required to bankroll the deal. And the title company sees to it that all areas of the exchange are completed and that the title is clear to transfer 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, who makes sure the real estate is worth 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from CCM Appraisal Systems, LLC will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

Our first responsibility at CCM Appraisal Systems, LLC is to inspect the property to ascertain its true status. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are present and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.

Once the site has been inspected, we use two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where we pull information on local construction costs, labor rates and other factors to derive how much it would cost to construct a property comparable to the one being appraised. This value usually 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 neighborhoods in which they work. They innately understand the value of certain features to the homeowners 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. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties 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 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.

In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At CCM Appraisal Systems, LLC, we are an authority in knowing the value of real estate features in Mounds View and Ramsey County neighborhoods. This approach to value is usually given the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

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

Putting It All Together

Combining information from all approaches, the appraiser is then ready to state an estimated market value for the subject property. Note: While the appraised value is probably the most accurate indication of what a property is worth, it may not be the final sales price. Depending 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.But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. At the end of the day, an appraiser from CCM Appraisal Systems, LLC will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.