Home Appraisals: A Primer

Buying real estate is the most important financial decision most people will ever consider. Whether it's a main residence, a second vacation home or an investment, purchasing real property is a detailed transaction that requires multiple parties to make it all happen.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.


The majority of the parties involved are very familiar. The most familiar entity in the transaction is the real estate agent. Next, the mortgage company provides the money needed to fund the transaction. The title company sees to it that all areas of the transaction are completed and that a clear title passes from the seller to the purchaser.

So what party is responsible for making sure the property is consistent with the amount being paid?   In comes the appraiser.   We provide an unbiased estimate 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 professional Texas licensed appraiser from AD Appraisal, Inc. will ensure you as an interested party are informed.

The inspection is where an appraisal begins

Our first responsibility at AD Appraisal, Inc. is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they indeed exist and are in the condition 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 house, the inspection often requires creating a sketch of the floor plan. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house.

Following the inspection, an appraiser employs two or three approaches when determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, the appraiser uses information on local building costs, the cost of labor and other elements to derive how much it would cost to build a property similar to the one being appraised. This value commonly sets the maximum on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers can tell you a lot about the communities in which they appraise. We thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

  • If, for example, the comparable has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
  • 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.
When it comes to valuing features of homes in Katy and Harris, AD Appraisal, Inc. is your local authority. The sales comparison approach to value is typically awarded the most weight when an appraisal is for a home sale.

Valuation Using the Income Approach

A third method of valuing a house is sometimes employed when an area has a reasonable number of rental properties. In this scenario, the amount of revenue the property generates is taken into consideration along with income produced by nearby properties to give an indicator of the current value.

Reconciliation

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. Note: While this amount is probably the best indication of what a property would sell for in an open market, it probably will not be the final sales price. Depending on the individual 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 often used as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to sell the property again. At the end of the day: An appraiser from AD Appraisal, Inc. will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.