Breaking Down the the Appraisal Process

Purchasing a house can be the most significant financial decision some people might ever consider. Whether it's a main residence, a seasonal vacation property or one of many rentals, purchasing real property is a complex financial transaction that requires multiple people working in concert to make it all happen.


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Most people are familiar with the parties having a role in the transaction. The most familiar entity in the transaction is the real estate agent. Then, the mortgage company provides the financial capital needed to finance the deal. The title company sees to it that all requirements of the transaction are completed and that a clear title passes from the seller to the buyer.

So what party makes sure the value of the property is in line with the purchase price? In comes the appraiser. We provide an unbiased opinion 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 Texas licensed appraiser from Patterson Appraisal Service will ensure you as an interested party are informed.

Inspecting the subject property

Our first duty at Patterson Appraisal Service is to inspect the property to determine its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they indeed are there and are in the condition a typical person would expect them to be. To ensure the stated square footage has not been misrepresented and document the layout of the house, the inspection often includes creating a sketch of the floor plan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.

Back at the office, we use 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.

Replacement Cost

This is where the appraiser uses information on local building costs, labor rates and other factors to calculate how much it would cost to replace the property being appraised. This figure commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers are intimately familiar with the communities in which they work. We innately understand the value of particular features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional 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.

If, for example, the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
But, 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.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. The sales comparison approach to value is most often given the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing a house is sometimes used when a neighborhood has a measurable number of rental properties. In this case, the amount of revenue the real estate yields is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Coming Up With the Final Value

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to sell the property again. The bottom line is: An appraiser from Patterson Appraisal Service will help you attain the most accurate property value, so you can make profitable real estate decisions.