What are the parts of an appraisal?

One's home purchase can be the most important transaction many of us may ever encounter. Whether it's where you raise your family, an additional vacation home or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple people working in concert to see it through.


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Practically all the parties participating are quite familiar. The most recognizable person in the exchange is the real estate agent. Then, the mortgage company provides the financial capital required to finance the transaction. The title company sees to it that all aspects of the transaction are completed and that the title is clear to transfer to the buyer from the seller.

So what party is responsible for making sure the value of the real estate is consistent with the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer might expect to pay - or a seller receive - for a property, where both buyer and seller are informed parties. A professional Ohio licensed appraiser from Lenco Appraisals will ensure you as an interested party are informed.

The inspection is where an appraisal starts

To determine the true status of the property, it's our responsibility to first complete a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly exist and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the floor plan, ensuring the square footage is correct and conveying the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the property.

Back at the office, we use two or three approaches when determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, the appraiser uses information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This value usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers can tell you a lot about the neighborhoods in which they work. We innately understand the value of certain features to the people of that area. Then, the appraiser looks up recent transactions in the neighborhood and finds properties which are 'comparable' to the subject being appraised. 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 storm shelter and the subject does not, the appraiser may subtract 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.

A true estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. The sales comparison approach to value is commonly awarded the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes applied when a neighborhood has a measurable number of renter occupied properties. In this scenario, the amount of revenue the property produces is factored in with other rents in the area for comparable properties to determine the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's market value Depending on the specific 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. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace. It all comes down to this: An appraiser from Lenco Appraisals will guarantee you get the most accurate property value, so you can make wise real estate decisions.