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What goes into an appraisal?

Purchasing a house is the largest financial decision many may ever make. It doesn't matter if it's a main residence, a seasonal vacation home or one of many rentals, the purchase of real property is an involved financial transaction that requires multiple people working in concert to pull it all off.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.


Most people are familiar with the parties taking part in the transaction. The real estate agent is the most recognizable person in the transaction. Then, the bank provides the money required to finance the exchange. The title company sees to it that all areas of the exchange are completed and that a clear title transfers to the buyer from the seller.

So who makes sure the value of the real estate is consistent with the amount being paid?   In comes the appraiser.   We provide an unbiased estimate of what a buyer could expect to pay - or a seller receive - for a parcel of real estate, where both buyer and seller are informed parties. A professional South Carolina licensed appraiser from Shepard Appraisal Group, LLC will ensure you as an interested party are informed.

The inspection is where an appraisal begins

Our first task at Shepard Appraisal Group, LLC is to inspect the property to determine its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they really are present and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.

Next, after the inspection, we use two or three approaches when determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where the appraiser analyzes information on local building costs, the cost of labor and other elements to determine how much it would cost to replace the property being appraised. This estimate usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers become very familiar with the communities in which they work. We thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home at hand. Using knowledge of the value of 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 more accurately match the features of subject.

  • For example, if the comparable has a storm shelter and the subject does not, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
  • However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount 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. The sales comparison approach to value is typically given the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes used when an area has a reasonable number of rental properties. In this situation, the amount of revenue the real estate yields is factored in with income produced by comparable properties to derive the current value.

Reconciliation

Examining the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. It is important to note that while this amount is probably the strongest indication of what a property would sell for in an open market, it may not be the price at which the property closes. Prices can always 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 used as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace. At the end of the day: An appraiser from Shepard Appraisal Group, LLC will help you get the most fair and balanced property value, so you can make the most informed real estate decisions.