Home Appraisals: A Primer

A home purchase can be the most important transaction most of us will ever encounter. Whether it's where you raise your family, an additional vacation home or one of many rentals, purchasing real property is a detailed transaction that requires multiple people working in concert to pull it all off.

You're likely to be familiar with the parties taking part in the transaction. The most known person in the exchange is the real estate agent. Then, the bank provides the financial capital necessary to bankroll the transaction. And ensuring all requirements of the sale are completed and that the title is clear to pass 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's responsible for making sure the value of the real estate is consistent with the amount being paid? In comes the appraiser. We provide an unbiased opinion of what a buyer could 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 Hammer Appraisals, LLC will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first duty at Hammer Appraisals, LLC is to inspect the property to determine its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the condition a reasonable person would expect them to be. To ensure the stated square footage is accurate and illustrate the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.

Once the site has been inspected, we use two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

Here, we gather information on local building costs, labor rates and other elements to ascertain how much it would cost to replace the property being appraised. This estimate usually sets the upper limit on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers are intimately familiar with the communities in which they appraise. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser researches recent sales in the neighborhood and finds properties which are 'comparable' to the subject at hand. Using knowledge of the value of certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they are more accurately in line with the features of subject.

  • For example, if the comparable has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace 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.

A valid 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 Hammer Appraisals, LLC, we are experts when it comes to knowing the worth of particular items in Verona and Dane County neighborhoods. The sales comparison approach to value is usually given the most consideration when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional method of valuing real estate. In this situation, the amount of income the property 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

Analyzing the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of a property's valueDepending on the individual situations 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 employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to put the property on the market again. At the end of the day, an appraiser from Hammer Appraisals, LLC will help you get the most fair and balanced property value, so you can make the most informed real estate decisions.