What Is an Appraisal?

A home purchase can be the largest financial decision many of us will ever make. Whether it's where you raise your family, an additional vacation home or an investment, the purchase of real property is a detailed financial transaction that requires multiple people working in concert to make it all happen.

Practically all the participants are very familiar. The real estate agent is the most known face in the exchange. Next, the mortgage company provides the financial capital required to finance the exchange. And ensuring all requirements of the transaction are completed and that the title is clear to transfer from the seller to the buyer 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, what party makes sure the value of the property is in line with the amount being paid? In comes the appraiser. We provide an unbiased estimate of what a buyer might 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 Atlas Appraisal Services will ensure, you as an interested party, are informed.

Appraisals start with the inspection

To ascertain an accurate status of the property, it's our responsibility to first conduct a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly are present and are in the shape a reasonable person would expect them to be. To make sure the stated square footage is accurate and convey the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the house.

Next, after the inspection, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, the appraiser uses information on local building costs, the cost of labor and other factors to derive how much it would cost to replace the property being appraised. This figure usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers are intimately familiar with the neighborhoods in which they appraise. They innately understand the value of specific features to the residents of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the property at hand. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, 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 doesn't, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
  • 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.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Atlas Appraisal Services, we are an authority in knowing the value of real estate features in Kapolei and Honolulu County neighborhoods. The sales comparison approach to value is typically awarded the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes applied when an area has a measurable number of rental properties. In this scenario, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to derive the current value.

Putting It All Together

Examining the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. 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 typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Atlas Appraisal Services will help you discover the most fair and balanced property value, so you can make the most informed real estate decisions.