Understanding the Appraisal Process

Acquiring a home is the biggest transaction many people will ever make. It doesn't matter if where you raise your family, a second vacation property or one of many rentals, the purchase of real property is a complex financial transaction that requires multiple people working in concert to pull it all off.

The majority of the people participating are quite familiar. The most recognizable entity in the transaction is the real estate agent. Next, the lender provides the financial capital required to fund the transaction. And the title company makes sure that all details of the exchange are completed and that the title is clear to transfer to the buyer from the seller.

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So, who's responsible for making sure the real estate is worth 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from First Class Appraisals, Inc will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain the true status of the property, it's our duty to first perform a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are present and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the property.

Following the inspection, an appraiser uses 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.

Cost Approach

Here, the appraiser pulls information on local construction costs, the cost of labor and other elements to determine how much it would cost to replace the property being appraised. This estimate commonly sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers are intimately familiar with the neighborhoods 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 vicinity and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately portray the features of subject.

  • For example, if the comparable has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain 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. At First Class Appraisals, Inc, we are experts when it comes to knowing the worth of particular items in Boulder City and Clark County neighborhoods. The sales comparison approach to value is commonly given the most importance 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 a third approach to value. In this case, the amount of revenue the property generates is factored in with income produced by comparable properties to give an indicator of the current value.

Putting It All Together

Analyzing the data from all approaches, the appraiser is then ready to document an estimated market value for the property in question. Note: While this amount is probably the strongest indication of what a house is worth, it probably will not be the price at which the property closes. Prices can always 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 the property is actually worth. At the end of the day, an appraiser from First Class Appraisals, Inc will guarantee you discover the most fair and balanced property value, so you can make the most informed real estate decisions.