What goes into an appraisal?

Acquiring real estate can be the largest financial decision some of us will ever make. It doesn't matter if it's where you raise your family, a seasonal vacation home or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple parties to see it through.

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


The majority of the participants are quite familiar. The real estate agent is the most familiar face in the transaction. Next, the mortgage company provides the financial capital required to finance the deal. Ensuring all areas of the transaction are completed and that the title is clear to pass to the buyer from the seller is the title company.

So what party makes sure the value of the real estate is in line with the purchase price?   This is where the appraiser comes in.   We provide an unbiased estimate 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 New Mexico licensed appraiser from Hufstedler Appraisal will ensure you as an interested party are informed.

Inspecting the subject property

Our first task at Hufstedler Appraisal is to inspect the property to determine its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the condition a typical person would expect them to be. To make sure the stated size of the property has not been misrepresented and convey the layout of the house, the inspection often entails creating a sketch of the floor plan. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.

Following the inspection, we use two or three approaches when determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, we pull information on local construction costs, labor rates and other elements to figure out how much it would cost to construct a property nearly identical to the one being appraised. This figure often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers can tell you a lot about the neighborhoods in which they work. We thoroughly understand the value of particular features to the people of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, an additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they more accurately match the features of subject.

  • If, for example, the comparable property has an irrigation system and the subject doesn't, the appraiser may subtract the value of an irrigation system from the sales price of the comparable.
  • However, 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.
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 commonly given the most weight when an appraisal is for a real estate sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional method of valuing a property. In this situation, the amount of revenue the real estate produces is taken into consideration along with income produced by similar properties to derive the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to state an estimated market value for the property in question. 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 could sell for in an open market. 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. 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. The bottom line is: An appraiser from Hufstedler Appraisal will help you discover the most fair and balanced property value, so you can make the most informed real estate decisions.