Understanding Appraisals

Getting a house can be the largest investment many of us may ever consider. Whether it's a primary residence, an additional vacation home or a rental fixer upper, purchasing real property is an involved financial transaction that requires multiple parties to see it through.

The majority of the parties involved are quite familiar. The most recognizable entity in the exchange is the real estate agent. Next, the mortgage company provides the financial capital necessary to finance the transaction. And ensuring all aspects of the exchange 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, what party is responsible for making sure the property is worth the purchase price? This is where you meet the appraiser. We provide an unbiased estimate 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 Southmost Realty, Appraisals & Court Expert Witness will ensure, you as an interested party, are informed.

Appraisals start with the inspection

Our first responsibility at Southmost Realty, Appraisals & Court Expert Witness is to inspect the property to determine its true status. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are present and are in the shape a typical person would expect them to be. To ensure the stated square footage is accurate and document the layout of the house, 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.

Back at the office, 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.

Replacement Cost

This is where we gather information on local building costs, labor rates and other elements to determine 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.

Sales Comparison

Appraisers become very familiar with the subdivisions in which they appraise. They innately understand the value of particular features to the residents of that area. Then, the appraiser looks up recent sales in the neighborhood and finds properties which are 'comparable' to the real estate being appraised. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • For example, if the comparable 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 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.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Southmost Realty, Appraisals & Court Expert Witness, we are an authority when it comes to knowing the worth of particular items in Harlingen and Cameron County neighborhoods. This approach to value is most often given the most consideration when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing a house is sometimes used when a neighborhood has a reasonable number of rental properties. In this situation, the amount of revenue the property yields is taken into consideration along with income produced by similar properties to determine the current value.

Arriving at a Value Conclusion

Examining the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While the appraised value is probably the best indication of what a property is worth, it probably will not be the price at which the property closes. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price 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 the event they had to sell the property again. Here's what it all boils down to, an appraiser from Southmost Realty, Appraisals & Court Expert Witness will help you discover the most fair and balanced property value, so you can make profitable real estate decisions.

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