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What are the components of an appraisal?

Purchasing real estate can be the biggest transaction some of us will ever consider. It doesn't matter if it's a primary residence, a second vacation home or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple parties to make it all happen.

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


Practically all the parties involved are quite familiar. The most recognizable face in the exchange is the real estate agent. Then, the lender provides the financial capital needed to bankroll the transaction. The title company sees to it that all requirements of the sale are completed and that a clear title transfers to the buyer from the seller.

So what party is responsible for making sure the real estate is consistent with the purchase price?   This is where the appraiser comes in.   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 professional Washington licensed appraiser from Sterling Appraisal Group will ensure you as an interested party are informed.

Inspecting the subject property

Our first task at Sterling Appraisal Group is to inspect the property to ascertain its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they truly are there and are in the shape 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, the appraiser looks for any obvious features - or defects - that would affect the value of the house.

Next, after the inspection, an appraiser employs 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

Here, the appraiser analyzes information on local construction costs, the cost of labor and other factors to derive how much it would cost to construct a property comparable to the one being appraised. This figure commonly sets the maximum on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers get to know the subdivisions in which they appraise. We innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property in question. Using knowledge of the value of certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.

  • Say, for example, the comparable property has a fireplace and the subject doesn't, the appraiser may deduct 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.
A valid estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. This approach to value is usually awarded the most weight when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing a property is sometimes used when a neighborhood has a measurable number of rental properties. In this case, the amount of revenue the property yields is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

Coming Up With the Final Value

Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property in question. It is important to note that while the appraised value is probably the most reliable indication of what a property would sell for in an open market, it probably will not be the final sales price. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is typically employed 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 Sterling Appraisal Group will guarantee you attain the most accurate property value, so you can make the most informed real estate decisions.