Our Process
For most people, a home is the largest investment they will ever make. Whether it’s a primary residence, a camp or an investment property, buying or financing real estate brings together several professionals: the real estate agent who markets the property, the lender who funds the loan, the title company that ensures clear ownership passes to the buyer, and the appraiser.
The appraiser’s role is different from the others. We have no stake in whether the sale closes or at what price. Our job is to develop an independent, well-supported opinion of the property’s market value, so that lenders, buyers and sellers can make decisions based on evidence rather than hope.
The Inspection
Every appraisal starts at the property. The appraiser observes the home inside and out, documenting its features, quality of construction, condition, updates and location, and noting anything that could affect its value or marketability. We measure the home to the ANSI Z765-2021 standard required by Fannie Mae and Freddie Mac, and prepare a floor plan sketch showing its size and layout.
With the property documented, the appraiser develops one or more of the three approaches to value: the Cost Approach, the Sales Comparison Approach and, for rental property, the Income Approach. The approaches used depend on the property and the purpose of the appraisal.
The Cost Approach
The Cost Approach asks what it would cost to replace the home today. The appraiser estimates the value of the land, adds the current cost to build the improvements using local building costs and national cost services, then subtracts depreciation for age, wear and any outdated features. Because a buyer generally won’t pay more for an existing home than the cost of building a comparable new one, this approach is most reliable for new or nearly new homes.
The Sales Comparison Approach
The Sales Comparison Approach is the most widely relied-upon method for residential property, and where most of the appraiser’s time is spent. The appraiser researches recent sales of similar properties in the same or competing neighborhoods, then adjusts each sale for differences from the subject, such as size, condition, bathrooms, garage, waterfront or view. For example, if a comparable sale has a garage and the subject doesn’t, the appraiser deducts the market value of the garage from that sale’s price. The adjusted sales prices then point to the subject’s value. Those adjustments come from local market data, which is why knowing the area matters.
The Income Approach
The Income Approach values a property based on the income it can produce, the way an investor would look at it. It’s developed for rental houses, 2–4 unit buildings and other properties that buyers in the market typically purchase for their rental income.
The appraiser first estimates market rent for the subject by studying rents of comparable rental properties in the area. Next, the appraiser analyzes sales of similar rental properties to find the relationship between their rents and their sale prices, called the Gross Rent Multiplier (GRM). Applying that multiplier to the subject’s market rent gives an indication of value. For lender assignments, this analysis is often supported by a Single-Family Comparable Rent Schedule or an Operating Income Statement.
Reconcilation
Combining information from the developed approach or approaches, the Appraiser is then ready to develop an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or “bidding wars” that may adjust the final price up or down. decisions.