Understanding Appraisals

Their home's purchase is the biggest investment many of us will ever consider. Whether it's a main residence, a seasonal vacation home or one of many rentals, the purchase of real property is a complex transaction that requires multiple people working in concert to see it through.

Practically all the participants are quite familiar. The most known entity in the exchange is the real estate agent. Next, the lender provides the money needed to bankroll the transaction. And ensuring all details of the sale are completed and that the title is clear to pass from the seller to the purchaser is the title company.

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 value of the real estate is consistent with the purchase price? In comes the appraiser. 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 Atomic Appraisal will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain the true status of the property, it's our duty to first complete a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really 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 proper and illustrating the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.

Once the site has been inspected, we use two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, the appraiser pulls information on local building costs, labor rates and other factors to determine how much it would cost to replace the property being appraised. This value often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers can tell you a lot about the communities in which they work. They innately understand the value of specific features to the residents of that area. Then, the appraiser researches recent sales in the neighborhood and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately match the features of subject property.

  • Say, for example, the comparable property has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Atomic Appraisal, we are an authority when it comes to knowing the value of real estate features in Sun Prairie and Dane County neighborhoods. This approach to value is usually awarded the most consideration when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing a house is sometimes used when an area has a reasonable number of rental properties. In this scenario, the amount of revenue the real estate generates is factored in with income produced by neighboring properties to give an indicator of the current value.

The Bottom Line

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the subject property. Note: 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. Depending on the specific situations of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.But the appraised value is typically employed 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 Atomic Appraisal will help you attain the most fair and balanced property value, so you can make wise real estate decisions.