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Understanding the appraisal process and what drives home values.

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What Is My Home Worth?
Understanding the appraisal process and what drives home values.
Written by John Tatman
Retired Real Estate Appraiser

Actually, there are two home values, the value to the homeowner and the value to the potential buyer. Unfortunately, both values are emotional and not facts based on market data.
 
The homeowner has time in the home, family, years of memories, children growing up, maintenance, perhaps blood sweat and tears in room additions, kitchen or bath remodeling. Obviously the owner places a high value on his/her castle and rightly so.
 
The buyers on the other hand see things differently and act on different emotions.
The buyers are looking for that emotional spark at the first viewing. The all-important first impression is what drives the potential buyers…at first. From there the first impression quickly turns to affordability, the cost to get in the home, the closing costs, the monthly notes, the taxes. Should I make an offer? What is the least I should offer?
 
Market value is somewhere between these two emotional extremes.
 
This is where the appraiser comes in with an objective opinion backed by market data.
 
Market value is defined as the price a willing buyer will pay to a willing seller for a product or service. In real estate, this is known as an “arms length transaction” meaning both buyer and seller acted willingly and not under duress.
 
Where does the appraiser begin and how do they arrive at those magic numbers called Market Value? It is not magical at all; it is a methodical series of analytical steps.
 
First, the appraiser makes a physical inspection of the property, determining size of livable floor space and making note of all amenities, such as the number of bedrooms and baths, the garage, washing facilities, storage areas, and any special features such as a fireplace, pool, patio or outbuildings.
 
After a through inspection, the appraiser has a starting point to arrive at market value.
With all the physical data collected, the appraiser uses two or three methods to arrive at market value.
The three methods are:
Market Approach: The appraiser searches for comparable homes in your neighborhood, subdivision or within your city with comparable neighborhoods.
Cost Approach/Cost analysis: The appraiser calculates the cost to build your home at current material and labor costs, less depreciation for structural damage, poor upkeep and neighborhood disintegration.
Income Approach: The income approach does not apply to residential market value. This approach applies to income producing properties such as residential duplexes, apartments and of course commercial properties.
 
If the property being appraised is a residential structure many factors are taken into consideration beyond the physical attributes of the property. The appraiser also considers the compatibility of your home within the neighborhood, such as does your neighborhood add to or reduce the value of your home? This involves pride in ownership factors, which occur in most communities.
However, location, location, location drives the final market analysis.
The appraiser considers the ebb and flow of growth and its direction within your town or city due to socio-economic factors. In addition, future city planning contributes to a large degree in your home maintaining its present value.
 
In Free PLR article summary, determining the value of your home is a complex procedure. The appraiser must know his/her city well and all the socio-economic factors driving the market. This takes years of observation, study, and considerable research by the appraiser.
 
When considering a professional appraisal, it is best to choose an appraiser who is certified and has any of the following professional designations: MAI (Member American Institute) ASA (American Society of Appraisers) SRA (Society of Appraisers) CRA (Certified Real Estate Appraiser) IFAS (Independent Fee Appraisal Society). This list is a few of the most recognized professional appraisal organizations in America.
 
John Tatman
Texas Showcase Homes