Breaking Down the the Appraisal Process

Acquiring real estate can be the largest financial decision many will ever encounter. Whether it's where you raise your family, a seasonal vacation property or an investment, the purchase of real property is a complex transaction that requires multiple people working in concert to pull it all off.


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It's likely you are familiar with the parties having a role in the transaction. The most known person in the transaction is the real estate agent. Then, the lender provides the money required to finance the transaction. Ensuring all aspects of the exchange are completed and that the title is clear to transfer from the seller to the purchaser is the title company.

So what party makes sure the value of the real estate is in line with the amount being paid? This is where you meet 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 professional Texas licensed appraiser from Anderson Appraisal, LLC will ensure you as an interested party are informed.

The inspection is where an appraisal starts

To determine an accurate status of the property, it's our duty to first conduct a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they really are there and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the floor plan, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the house.

After the inspection, an appraiser employs two or three approaches when determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where we use 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 maximum on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers become very familiar with the communities in which they appraise. We innately understand the value of particular features to the residents 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 square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately portray the features of subject property.

For example, if the comparable property has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
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.

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. This approach to value is typically awarded the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes applied when a neighborhood has a reasonable number of renter occupied properties. In this case, the amount of income the property generates is factored in with income produced by similar properties to give an indicator of the current value.

Arriving at a Value Conclusion

Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property in question. 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 what a property could sell for in an open market. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to sell the property again. The bottom line is: An appraiser from Anderson Appraisal, LLC will help you attain the most accurate property value, so you can make profitable real estate decisions.