What is an appraisal?

Buying real estate is the biggest financial decision some will ever make. It doesn't matter if it's a main residence, an additional vacation property or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple parties to see it through.


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Most of the parties involved are very familiar. The real estate agent is the most known person in the exchange. Next, the bank provides the money needed to fund the exchange. The title company ensures that all details of the exchange are completed and that the title is clear to pass to the buyer from the seller.

So what party is responsible for making 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 Michigan licensed appraiser from Marketrend Appraisals, LLC will ensure you as an interested party are informed.

Inspecting the subject property

To ascertain the true status of the property, it's our duty to first perform a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are present and are in the shape a reasonable person would expect them to be. To make sure the stated size of the property is accurate and document the layout of the property, the inspection often requires creating a sketch of the floor plan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.

Next, after the inspection, an appraiser employs two or three approaches when determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, the appraiser uses information on local building costs, labor rates and other factors to calculate how much it would cost to construct a property similar to the one being appraised. This estimate usually sets the maximum on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers are intimately familiar with the neighborhoods in which they work. We innately understand the value of certain features to the residents of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, an additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately match the features of subject property.

For example, if the comparable has a fireplace and the subject doesn't, the appraiser may subtract the value of a fireplace from the sales price of the comparable.
However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. This approach to value is most often given the most weight when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third way of valuing a house is sometimes applied when an area has a measurable number of rental properties. In this case, the amount of revenue the real estate generates is taken into consideration along with income produced by neighboring properties to derive the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. The estimate of value on 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. 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. The bottom line is: An appraiser from Marketrend Appraisals will help you discover the most accurate property value, so you can make wise real estate decisions.