What goes into an appraisal?

Buying a house can be the biggest transaction most of us will ever make. It doesn't matter if it's a main residence, a seasonal vacation home or an investment, the purchase of real property is a detailed 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 people involved are very familiar. The real estate agent is the most familiar person in the exchange. Then, the bank provides the money needed to finance the deal. Ensuring all details of the transaction are completed and that a clear title transfers from the seller to the purchaser is the title company.

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 Alabama licensed appraiser from Montgomery Appraisal Associates, LLC will ensure you as an interested party are informed.

Appraisals begin with the home inspection

Our first duty at Montgomery Appraisal Associates, LLC is to inspect the property to ascertain its true status. 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 exist and are in the condition a reasonable person would expect them to be. To make sure the stated size of the property is accurate and describe the layout of the home, the inspection often entails creating a sketch of the floor plan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the property.

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

Here, the appraiser uses information on local construction costs, labor rates and other elements to ascertain how much it would cost to replace the property being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers can tell you a lot about the neighborhoods in which they work. We thoroughly understand the value of particular features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • If, for example, the comparable 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 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.
In the end, 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 typically awarded the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional way of valuing real estate. In this situation, the amount of income the real estate yields is factored in with other rents in the area for comparable properties to derive the current value.

The Bottom Line

Examining the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the most accurate indication of what a house is worth, it probably will not be the final sales price. It's not uncommon for prices to 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 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 Montgomery Appraisal Associates, LLC will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.