Understanding Appraisals

Acquiring a house can be the most important investment most people will ever encounter. Whether it's a main residence, an additional vacation property or a rental fixer upper, purchasing real property is a complex transaction that requires multiple parties to make it all happen.

Practically all the parties involved are very familiar. The most known person in the exchange is the real estate agent. Next, the mortgage company provides the money necessary to finance the transaction. The title company sees to it that all requirements of the transaction are completed and that a clear title passes to the buyer from the seller.

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So, who's responsible for making sure the value of the real estate is consistent with the amount being paid? 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Hill Appraisal Associates, LLC will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

Our first responsibility at Hill Appraisal Associates, LLC is to inspect the property to determine 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 indeed exist and are in the shape a reasonable 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, we identify any obvious features - or defects - that would have an impact on the value of the house.

Back at the office, we consider three approaches to determining the value of the property: cost approach, sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, we analyze information on local building costs, labor rates and other factors to figure out how much it would cost to build a property comparable to the one being appraised. This figure usually sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers get to know the subdivisions in which they appraise. They innately understand the value of particular features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the property in question. Analyzing 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 property sales prices so that they more closely match the features of subject property.

  • If, for example, the comparable has an irrigation system and the subject does not, the appraiser may subtract the market value of an irrigation system from the sales price of the comparable home.
  • However, in the case where the subject has something such as an extra half bathroom that a comparable doesn't have, the appraiser might add the market value of that bathroom to the comparable property.

The appraiser reconciles the adjusted sales prices of all the comparables and then develops an opinion of what the subject could sell for. When it comes to valuing features of homes in Philadelphia, Montgomery County, Bucks County and surrounding areas , Hill Appraisal Associates, LLC can't be beat. The sales comparison approach to value is typically awarded the most weight in a residential appraisal.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes used when an area has a measurable number of renter occupied properties. In this scenario, the amount of revenue the real estate produces is factored in with income produced by nearby properties to determine the current value.

Arriving at a Value Conclusion

Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property in question. It is important to note that while the appraised value is probably the most reliable 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'. Regardless, the appraised value is often used 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 Hill Appraisal Associates, LLC will give you the knowledge you need, to assist you with making important real estate decisions.