Understanding Appraisals

Their home's purchase can be the largest financial decision some of us could ever make. It doesn't matter if where you raise your family, an additional vacation property or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple people working in concert to pull it all off.

The majority of the participants are very familiar. The most recognizable entity in the transaction is the real estate agent. Then, the lender provides the money necessary to fund the exchange. And ensuring all areas of the exchange are completed and that a clear title transfers 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's responsible for making sure the value of the property is in line with the amount being paid? This is where you meet 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 licensed, certified, professional appraiser from Shane Coughlin will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at Shane Coughlin is to inspect the property to determine its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there and are in the shape a reasonable person would expect them to be. To make sure the stated square footage has not been misrepresented and convey the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

Back at the office, an appraiser uses two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

Here, we gather information on local construction costs, the cost of labor and other elements to figure out how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers can tell you a lot about the subdivisions in which they work. They thoroughly understand the value of certain 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 property in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they more accurately match the features of subject property.

  • For example, if the comparable property has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Shane Coughlin, we are an authority when it comes to knowing the value of particular items in Bloomington and McLean County neighborhoods. The sales comparison approach to value is commonly given the most consideration when an appraisal is for a home sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional approach to value. In this case, the amount of income the real estate 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

Examining the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. Depending on the specific circumstances 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.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 case they had to put the property on the market again. The bottom line is, an appraiser from Shane Coughlin will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.