Real Property Appraisals: A Primer

A home purchase is the most significant transaction some people might ever encounter. Whether it's where you raise your family, an additional vacation home or one of many rentals, the purchase of real property is a complex financial transaction that requires multiple parties to see it through.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.


Most people are familiar with the parties taking part in the transaction. The most familiar person in the exchange is the real estate agent. Then, the lender provides the money required to bankroll the deal. Ensuring all details of the exchange are completed and that the title is clear to transfer to the buyer from the seller is the title company.

So who makes sure the property 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 parcel of real estate, where both buyer and seller are informed parties. A professional Pennsylvania licensed appraiser from Craig Gehm Appraisals will ensure you as an interested party are informed.

Appraisals start with the home inspection

Our first duty at Craig Gehm Appraisals is to inspect the property to ascertain its true status. We must see aspects of the property 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 typical person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the property.

Once the site has been inspected, an appraiser employs two or three approaches when determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

Here, the appraiser uses information on local building costs, the cost of labor and other factors to figure out how much it would cost to construct a property similar to the one being appraised. This figure often 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 subdivisions in which they work. We thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the property in question. By assigning a dollar value to certain items such as square footage, additional 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 more accurately match the features of subject.

  • For example, if the comparable has an extra half bath that the subject does not, the appraiser may subtract the value of that half bath from the sales price of the comparable home.
  • However, 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 valid 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 most often given the most importance when an appraisal is for a real estate purchase.

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 situation, the amount of revenue the property yields is factored in with income produced by nearby properties to determine the current value.

Reconciliation

Examining the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While the appraised value is probably the best indication of what a house would sell for in an open market, it may not be the price at which the property closes. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is typically used 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. At the end of the day: An appraiser from Craig Gehm Appraisals will help you discover the most fair and balanced property value, so you can make profitable real estate decisions.