What are the components of an appraisal?

Buying real estate can be the largest investment many people will ever make. It doesn't matter if it's where you raise your family, an additional vacation home or an investment, purchasing real property is a complex transaction that requires multiple people working in concert to see it through.


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The majority of the participants are quite familiar. The most familiar entity in the transaction is the real estate agent. Next, the lender provides the money required to fund the transaction. The title company ensures that all aspects of the sale are completed and that the title is clear to transfer from the seller to the buyer.

So who makes sure the property is consistent with the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer might expect to pay - or a seller receive - for a property, where both buyer and seller are informed parties. A professional North Carolina licensed appraiser from Davidson & Associates will ensure you as an interested party are informed.

Appraisals begin with the property inspection

Our first responsibility at Davidson & Associates is to inspect the property to ascertain its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they really exist and are in the shape a reasonable buyer would expect them to be. To ensure the stated square footage is accurate and document the layout of the home, the inspection often requires creating a sketch of the floor plan. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.

Once the site has been inspected, we use two or three approaches when determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, the appraiser uses information on local building costs, labor rates and other factors to calculate how much it would cost to build a property nearly identical to the one being appraised. This figure commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers become very familiar with the communities in which they work. We innately understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home at hand. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.

For example, if 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.
However, 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 putting a value on features of homes in Winston-Salem and Forsyth, Davidson & Associates can't be beat. The sales comparison approach to value is usually awarded the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes employed when an area has a reasonable number of rental properties. In this case, the amount of income the property generates is taken into consideration along with income produced by nearby properties to derive the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to state an estimated market value for the property in question. Note: While the appraised value is probably the strongest indication of what a house is worth, it probably will not be the price at which the property closes. Depending on the specific 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. Regardless, the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to put the property on the market again. It all comes down to this: An appraiser from Davidson & Associates will guarantee you discover the most fair and balanced property value, so you can make wise real estate decisions.