Real Property Appraisals: A Primer

Purchasing real estate can be the biggest investment most of us may ever make. Whether it's where you raise your family, a seasonal vacation home or an investment, purchasing real property is a complex transaction that requires multiple parties to see it through.

Practically all the participants are very familiar. The most known entity in the exchange is the real estate agent. Next, the bank provides the money necessary to fund the exchange. And the title company makes sure that all details of the transaction are completed and that the title is clear to pass from the seller to the buyer.

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 property is worth the amount being paid? This is where the appraiser comes in. We provide an unbiased opinion 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 Palmetto Valuation Services will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

To determine the true status of the property, it's our duty to first conduct a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really exist and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the property.

Following the inspection, we use two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

This is where the appraiser analyzes information on local building costs, labor rates and other factors to determine how much it would cost to build a property comparable to the one being appraised. This figure often sets the maximum 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 appraise. They innately understand the value of certain features to the people of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the subject being appraised. 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 are more accurately in line with the features of subject.

  • For example, if the comparable has an irrigation system and the subject doesn't, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
  • 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.

A true estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Palmetto Valuation Services, we are an authority in knowing the value of real estate features in Myrtle Beach and Horry County neighborhoods. This approach to value is most often awarded the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

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

Putting It All Together

Examining the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While this amount is probably the best indication of what a house is worth, it may not be the price at which the property closes. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is typically employed 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 Palmetto Valuation Services will help you discover the most fair and balanced property value, so you can make profitable real estate decisions.