Decoding the Appraisal Process

Getting a house is the most serious financial decision many of us may ever encounter. It doesn't matter if where you raise your family, a second vacation property or a rental fixer upper, purchasing real property is a complex financial transaction that requires multiple people working in concert to pull it all off.

Most of the participants are quite familiar. The real estate agent is the most familiar person in the exchange. Next, the mortgage company provides the money needed to finance the transaction. And ensuring all requirements of the transaction are completed and that the title is clear to pass from the seller to the purchaser is the title company.

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So, who's responsible for making sure the property is worth the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Xelloss Corp Appraisals will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first task at Xelloss Corp Appraisals is to inspect the property to ascertain its true status. We must actually view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.

Back at the office, we use 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.

Cost Approach

Here, the appraiser pulls information on local construction costs, the cost of labor and other elements to calculate how much it would cost to construct a property nearly identical to the one being appraised. This figure usually sets the maximum on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers are intimately familiar with the subdivisions in which they work. They thoroughly understand the value of specific features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject being appraised. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, 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 a fireplace and the subject does not, the appraiser may deduct the value of a fireplace 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.

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. At Xelloss Corp Appraisals, we are an authority in knowing the value of particular items in Oklahoma City and Oklahoma County neighborhoods. The sales comparison approach to value is most often given the most weight 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 a third approach to value. In this situation, the amount of revenue the real estate yields is factored in with other rents in the area for comparable properties to determine the current value.

Arriving at a Value Conclusion

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the property in question. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. Depending on the specific circumstances 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 case they had to put the property on the market again. At the end of the day, an appraiser from Xelloss Corp Appraisals will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.