Appraisal Process

 The Inspection
So what goes  into a real estate appraisal? It all starts with the inspection. An  appraiser's duty is to inspect the property being appraised to ascertain  the true status of that property. He or she must actually see features,  such as the number of bedrooms, bathrooms, the location, and so on, to  ensure that they really exist and are in the condition a reasonable  buyer would expect them to be. The inspection often includes a sketch of  the property, ensuring the proper square footage and conveying the  layout of the property. Most importantly, the appraiser looks for any  obvious features - or defects - that would affect the value of the  house.

Once the site has been inspected, an appraiser uses two or  three approaches to determining the value of real property: a cost  approach, a sales comparison and, in the case of a rental property, an  income approach.

Cost Approach
The cost approach is the  easiest to understand. The appraiser uses information on local building  costs, labor rates and other factors to determine how much it would  cost to construct a property similar to the one being appraised. This  value often sets the upper limit on what a property would sell for. Why  would you pay more for an existing property if you could spend less and  build a brand new home instead? While there may be mitigating factors,  such as location and amenities, these are usually not reflected in the  cost approach.

Sales Comparison
Instead, appraisers  rely on the sales comparison approach to value these types of items.  Appraisers get to know the neighborhoods in which they work. They  understand the value of certain features to the residents of that area.  They know the traffic patterns, the school zones, the busy throughways;  and they use this information to determine which attributes of a  property will make a difference in the value. Then, the appraiser  researches recent sales in the vicinity and finds properties which are  ''comparable'' to the subject being appraised. The sales prices of these  properties are used as a basis to begin the sales comparison approach.

Using  knowledge of the value of certain items such as square footage, extra  bathrooms, hardwood floors, fireplaces or view lots (just to name a  few), the appraiser adjusts the comparable properties to more accurately  portray the subject property. For example, if the comparable property  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 a certain amount to the comparable  property.

In the case of income producing properties - rental  houses for example - the appraiser may use a third approach to valuing  the property. In this case, the amount of income the property produces  is used to arrive at the current value of those revenues over the  foreseeable future.

Combining  information from all approaches, the appraiser is then ready to  stipulate an estimated market value for the subject property. It is  important to note that while this amount is probably the best indication  of what a property is worth, it may not be the final sales price. There  are always mitigating factors such as seller motivation, urgency or  ''bidding wars'' that may adjust the final price 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 the property is actually worth. The  bottom line is: an appraiser will help you get the most accurate  property value, so you can make the most informed real estate decisions.