Decoding the Appraisal Process

A home purchase is the most significant financial decision many may ever consider. Whether it's where you raise your family, a second vacation home or an investment, purchasing real property is a complex financial transaction that requires multiple parties to see it through.

You're likely to be familiar with the parties having a role in the transaction. The most recognizable person in the transaction is the real estate agent. Then, the mortgage company provides the financial capital required to fund the exchange. The title company sees to it that all areas of the transaction are completed and that the title is clear to pass from the seller to the buyer.

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So, what party is responsible for making sure the value of the property is consistent with the purchase price? This is where you meet the appraiser. 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 Phoenix Valuations, LLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first task at Phoenix Valuations, LLC is to inspect the property to determine its true status. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.

Following the inspection, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

This is where we analyze information on local building costs, labor rates and other elements to determine how much it would cost to build a property nearly identical to the one being appraised. This value commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers get to know the neighborhoods in which they work. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate being appraised. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately match the features of subject property.

  • For example, if the comparable has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace 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.

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 putting a value on features of homes in Scottsdale and Maricopa, Phoenix Valuations, LLC can't be beat. This approach to value is most often 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 measurable number of rental properties. In this situation, the amount of income the real estate generates is factored in with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. It is important to note that while the appraised value is probably the strongest 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. At the end of the day, an appraiser from Phoenix Valuations, LLC will help you get the most accurate property value, so you can make the most informed real estate decisions.