Understanding the Appraisal Process

Their home's purchase is the most significant investment most people might ever make. Whether it's a main residence, a seasonal vacation home or a rental fixer upper, purchasing real property is a detailed transaction that requires multiple people working in concert to pull it all off.

Most people are familiar with the parties having a role in the transaction. The real estate agent is the most known person in the exchange. Then, the lender provides the money required to finance the deal. And the title company makes sure that all aspects of the sale are completed and that the title is clear to pass 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, who makes sure the real estate is worth the amount being paid? This is where the appraiser comes in. 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 licensed, certified, professional appraiser from Cunningham Inc will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first responsibility at Cunningham Inc is to inspect the property to ascertain its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are present and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the property.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of the 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 construction costs, labor rates and other elements to figure out how much it would cost to construct a property nearly identical to the one being appraised. This estimate often sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers get to know the neighborhoods in which they work. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the subject 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 are more accurately in line with the features of subject property.

  • Say, for example, the comparable property 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 a certain amount 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. When it comes to associating a value with features of homes in Danville and Vermilion, Cunningham Inc can't be beat. This approach to value is usually given the most importance when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third way of valuing a property is sometimes employed when an area has a measurable number of rental properties. In this situation, the amount of revenue the real estate yields is factored in with income produced by neighboring properties to determine the current value.

Putting It All Together

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. Note: While the appraised value is probably the most accurate indication of what a property is worth, it may not be the final sales price. 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 often employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. Here's what it all boils down to, an appraiser from Cunningham Inc will help you get the most fair and balanced property value, so you can make profitable real estate decisions.