What Is an Appraisal?

A home purchase is the biggest financial decision most may ever consider. It doesn't matter if a primary residence, a second vacation home or an investment, purchasing real property is an involved transaction that requires multiple parties to make it all happen.

It's likely you are familiar with the parties taking part in the transaction. The real estate agent is the most familiar person in the exchange. Then, the lender provides the financial capital needed to finance the transaction. And ensuring all areas of the transaction are completed and that a clear title passes to the buyer from the seller 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 makes sure the real estate is worth 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Farwig Appraisal Services will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first responsibility at Farwig Appraisal Services is to inspect the property to determine its true status. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed exist and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is correct and conveying the layout of the property. Most importantly, we look for any obvious features - or defects - that would affect the value of the house.

After the inspection, an appraiser uses two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Sales Comparison

Appraisers get to know the communities in which they work. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the subject at hand. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject.

  • For example, if the comparable 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.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain 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. When it comes to knowing the true value of features of homes in West Michigan, Farwig Appraisal Services is second to none. The sales comparison approach to value is most often awarded the most importance when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this case, the amount of income the real estate produces is factored in with other rents in the area for comparable properties to derive the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to state an estimated market value for the subject property. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of a property's value. 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 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 Farwig Appraisal Services will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.