Understanding Appraisals

Purchasing a home is the most serious transaction most people could ever consider. Whether it's where you raise your family, a second vacation property or an investment, purchasing real property is a complex financial transaction that requires multiple parties to see it through.

Most of the participants are very familiar. The most recognizable face in the exchange is the real estate agent. Next, the bank provides the financial capital necessary to fund the transaction. And ensuring all details of the exchange are completed and that the title is clear to pass 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, who's responsible for making sure the real estate is worth the amount being paid? This is where you meet the appraiser. 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 STEVEN GIANNINI & ASSOCIATES will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain an accurate status of the property, it's our duty to first perform a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the condition a typical buyer 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 identify any obvious amenities - or defects - that would affect the value of the house.

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

Cost Approach

This is where we analyze information on local building costs, the cost of labor and other factors to calculate 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 predictor of value.

Sales Comparison

Appraisers can tell you a lot about the subdivisions in which they appraise. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject in question. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.

  • 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.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At STEVEN GIANNINI & ASSOCIATES, we are experts in knowing the value of real estate features in Glen Ellyn and Dupage County neighborhoods. This approach to value is most often given the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third method of valuing a house is sometimes employed when a neighborhood has a measurable number of renter occupied properties. In this situation, the amount of revenue the real estate generates is factored in with other rents in the area for comparable properties to derive the current value.

Putting It All Together

Analyzing the data from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. 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. 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 the property is actually worth. Here's what it all boils down to, an appraiser from STEVEN GIANNINI & ASSOCIATES will help you discover the most accurate property value, so you can make the most informed real estate decisions.