Understanding Appraisals

Purchasing a house can be the biggest financial decision some will ever make. Whether it's a main residence, a seasonal vacation home or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple parties to make it all happen.

Most of the participants are quite familiar. The real estate agent is the most recognizable face in the transaction. Then, the mortgage company provides the financial capital required to finance the exchange. The title company ensures that all areas of the exchange are completed and that a clear title transfers from the seller to the purchaser.

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 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Foundation Appraisal, LLC will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain the true status of the property, it's our responsibility to first complete a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are present and are in the condition a reasonable buyer would expect them to be. To make sure the stated square footage has not been misrepresented and illustrate the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we look 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 to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

This is where the appraiser analyzes information on local building costs, the cost of labor and other factors to calculate how much it would cost to replace the property being appraised. This figure usually sets the maximum 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 work. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they more accurately portray 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.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Foundation Appraisal, LLC, we are an authority in knowing the worth of real estate features in Oswego and Kendall County neighborhoods. The sales comparison approach to value is typically given the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third way of valuing a house. In this scenario, the amount of revenue the real estate yields is factored in with income produced by neighboring properties to derive the current value.

Putting It All Together

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the strongest indication of what a property is worth, it probably will not be the price at which the property closes. 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 the property is actually worth. At the end of the day, an appraiser from Foundation Appraisal, LLC will help you get the most accurate property value, so you can make the most informed real estate decisions.