Understanding the Appraisal Process

Buying real estate can be the most serious investment some will ever consider. It doesn't matter if a main residence, a second vacation property or an investment, purchasing real property is an involved financial transaction that requires multiple people working in concert to see it through.

Most people are familiar with the parties having a role in the transaction. The most recognizable person in the exchange is the real estate agent. Next, the bank provides the financial capital required to bankroll the exchange. And the title company sees to it that all requirements of the exchange are completed and that the title is clear to pass from the seller to the buyer.

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 in line 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from E Ross Long Associates will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first task at E Ross Long Associates is to inspect the property to ascertain its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really exist and are in the condition a reasonable buyer would expect them to be. To ensure the stated size of the property is accurate and convey the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - 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 real property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

Here, the appraiser pulls information on local building costs, the cost of labor and other elements to derive how much it would cost to build a property comparable to the one being appraised. This figure often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers become very familiar with the communities in which they appraise. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the subject at hand. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.

  • For example, if the comparable property has an extra half bath that the subject doesn't, the appraiser may deduct the value of that half bath from the sales price of the comparable.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

A true estimate of what the subject might 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 Silver Spring and Montgomery, E Ross Long Associates can't be beat. This approach to value is typically awarded the most weight when an appraisal is for a home sale.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes used when an area has a reasonable number of renter occupied properties. In this situation, the amount of revenue the property yields is taken into consideration along with other rents in the area for comparable 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. Note: While this amount is probably the most reliable indication of what a house 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'. Regardless, the appraised value is often employed 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 E Ross Long Associates will guarantee you attain the most accurate property value, so you can make the most informed real estate decisions.