Understanding Appraisals

A home purchase is the most significant financial decision most might ever encounter. Whether it's where you raise your family, a seasonal vacation property or a rental fixer upper, purchasing real property is a detailed transaction that requires multiple parties to see it through.

Practically all the parties participating are quite familiar. The most familiar person in the exchange is the real estate agent. Next, the bank provides the financial capital needed to finance the transaction. And ensuring all details of the exchange are completed and that the title is clear to pass from the seller to the buyer is the title company.

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So, what party makes sure the real estate is worth the amount being paid? In comes the appraiser. We provide an unbiased estimate 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 JP Fagan Appraisals will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

To determine an accurate status of the property, it's our responsibility to first conduct a thorough inspection. We must actually view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the shape a typical buyer would expect them to be. To make sure the stated size of the property has not been misrepresented and describe the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the property.

Once the site has been inspected, an appraiser uses 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, we use information on local building costs, labor rates and other elements to calculate how much it would cost to replace the property being appraised. This value usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers are intimately familiar with the neighborhoods in which they appraise. They innately understand the value of particular features to the people of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • Say, for example, the comparable property has an extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath from the sales price of the comparable.
  • However, in the case where the subject has something such as an extra half bath that a comparable doesn't have, the appraiser might add the value of that bath 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. When it comes to putting a value on features of homes in Bacliff and Galveston, JP Fagan Appraisals can't be beat. The sales comparison approach to value is typically given the most weight when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes employed when a neighborhood has a measurable number of renter occupied properties. In this situation, the amount of income the property generates is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

Coming Up With The Final Value

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the subject property. It is important to note that while the appraised value is probably the strongest indication of what a house is worth, it may not be the price at which the property closes. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to sell the property again. Here's what it all boils down to, an appraiser from JP Fagan Appraisals will guarantee you attain the most fair and balanced property value, so you can make profitable real estate decisions.