Making Sense of the Appraisal Process

A home purchase is the largest investment some people might ever consider. It doesn't matter if where you raise your family, a second vacation home or a rental fixer upper, the purchase of real property is a detailed financial transaction that requires multiple people working in concert to see it through.

Most people are familiar with the parties having a role in the transaction. The most known entity in the transaction is the real estate agent. Then, the bank provides the money required to finance the deal. And ensuring all aspects of the sale are completed and that the title is clear to transfer from the seller to the buyer is the title company.

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So, who makes sure the real estate is worth 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 property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Pittsburgh Valuation Group, Inc. will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at Pittsburgh Valuation Group, Inc. is to inspect the property to determine its true status. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are present and are in the shape a reasonable buyer would expect them to be. To make sure the stated size of the property is accurate and convey the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the house.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

This is where the appraiser uses information on local construction costs, labor rates and other elements to ascertain how much it would cost to build a property comparable to the one being appraised. This estimate commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Analyzing Comparable Sales

Appraisers become very familiar with the subdivisions in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, 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 storm shelter and the subject doesn't, the appraiser may subtract the value of a storm shelter from the sales price of the comparable.
  • 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.

A true estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to putting a value on features of homes in Pittsburgh and Allegheny, Pittsburgh Valuation Group, Inc. is your local authority. The sales comparison approach to value is usually awarded the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third way of valuing a property is sometimes employed when a neighborhood has a reasonable number of renter occupied properties. In this situation, the amount of revenue the property produces is factored in with income produced by neighboring properties to give an indicator of the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property is worth. 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 often used 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 Pittsburgh Valuation Group, Inc. will help you attain the most fair and balanced property value, so you can make profitable real estate decisions.