What Goes Into an Appraisal?

Buying real estate is the most serious transaction some will ever encounter. Whether it's a primary residence, a seasonal vacation home or one of many rentals, purchasing real property is a complex transaction that requires multiple parties to pull it all off.

Practically all the parties involved are very familiar. The real estate agent is the most familiar face in the transaction. Then, the lender provides the financial capital necessary to fund the transaction. And ensuring all areas of the sale are completed and that a clear title transfers 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 property is consistent with the purchase price? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Gate City Bank will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

To ascertain the true status of the property, it's our responsibility to first conduct a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, we identify 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 real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, the appraiser pulls information on local building costs, labor rates and other factors to figure out how much it would cost to replace the property being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers become very familiar with the neighborhoods in which they work. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the real estate 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 match the features of subject property.

  • For example, if the comparable has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace from the sales price of the comparable.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to valuing features of homes in Fargo and Cass, Gate City Bank is second to none. The sales comparison approach to value is commonly 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 - the appraiser may use an additional way of valuing a house. In this case, the amount of income the property yields is taken into consideration along with income produced by neighboring properties to derive the current value.

Coming Up With The Final Value

Combining information 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 what a property is worth. 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'. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to put the property on the market again. The bottom line is, an appraiser from Gate City Bank will help you discover the most fair and balanced property value, so you can make wise real estate decisions.