Decoding the Appraisal Process

Acquiring a house can be the most serious financial decision many people could ever consider. Whether it's where you raise your family, a second vacation property or an investment, purchasing real property is a detailed transaction that requires multiple people working in concert to see it through.

Most of the participants are quite familiar. The most known person in the exchange is the real estate agent. Then, the mortgage company provides the money needed to fund the exchange. And the title company ensures that all details of the transaction are completed and that the title is clear to transfer to the buyer from the seller.

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

So, what party makes sure the value of the real estate is consistent with the purchase price? 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 licensed, certified, professional appraiser from Merit Appraisal Group will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first duty at Merit Appraisal Group is to inspect the property to determine its true status. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly exist and are in the condition a reasonable 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 entails creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.

Back at the office, 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 the appraiser analyzes information on local building costs, the cost of labor and other elements to ascertain how much it would cost to replace the property being appraised. This estimate often sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers get to know the neighborhoods in which they work. They innately understand the value of certain features to the residents 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 in question. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately match the features of subject.

  • Say, for example, 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.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Merit Appraisal Group, we are experts in knowing the value of real estate features in Atlanta and Fulton County neighborhoods. This approach to value is commonly given the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes applied when a neighborhood has a reasonable number of renter occupied properties. In this situation, the amount of revenue the real estate produces is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to document an estimated market value for the subject property. Note: While this amount is probably the best indication of what a property is worth, it may not be the price at which the property closes. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, 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 Merit Appraisal Group will help you discover the most fair and balanced property value, so you can make the most informed real estate decisions.