What goes into an appraisal?

A home purchase can be the most significant financial decision most may ever encounter. It doesn't matter if it's a main residence, an additional vacation property or a rental fixer upper, purchasing real property is an involved transaction that requires multiple parties to pull it all off.

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 participants are very familiar. The real estate agent is the most familiar entity in the transaction. Then, the lender provides the money needed to bankroll the exchange. The title company makes sure that all details of the exchange are completed and that the title is clear to pass from the seller to the purchaser.

So what party is responsible for making sure the real estate is consistent with the purchase price?   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 Michigan licensed appraiser from ARV, Inc. will ensure you as an interested party are informed.

Appraisals begin with the inspection

To ascertain an accurate status of the property, it's our responsibility to first conduct a thorough inspection. We must actually view features, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they truly are there and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the floor plan, ensuring the square footage is correct and conveying the layout of the property. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the house.

Back at the office, an appraiser employs two or three approaches when determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

This is where we use information on local construction costs, the cost of labor and other factors to figure out how much it would cost to construct a property nearly identical to the one being appraised. This value often sets the maximum on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers can tell you a lot about the communities in which they appraise. We thoroughly 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 property at hand. By assigning a dollar value to 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 are more accurately in line with the features of subject property.

  • Say, for example, the comparable has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable home.
  • 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. This approach to value is most often given the most consideration when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing a property is sometimes applied when an area has a reasonable number of renter occupied properties. In this case, the amount of income the real estate yields is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Arriving at a Value Conclusion

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 at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's market value 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'. Regardless, the appraised value is typically employed 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. At the end of the day: An appraiser from ARV, Inc. will guarantee you get the most accurate property value, so you can make the most informed real estate decisions.