Understanding the Appraisal Process

Buying real estate can be the most significant financial decision many of us may ever make. It doesn't matter if it's a main residence, a second vacation property or a rental fixer upper, purchasing real property is a complex financial transaction that requires multiple people working in concert 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.

You're likely to be familiar with the parties having a role in the transaction. The real estate agent is the most known face in the exchange. Next, the mortgage company provides the money needed to bankroll the exchange. The title company makes sure that all aspects of the sale are completed and that the title is clear to pass from the seller to the buyer.

So what party makes sure the value of the real estate is consistent with the amount being paid? This is where the appraiser comes in. 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 Hawaii licensed appraiser from Hanamura Appraisal Company will ensure you as an interested party are informed.

Appraisals begin with the home inspection

Our first responsibility at Hanamura Appraisal Company is to inspect the property to ascertain 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 indeed exist and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the house.

After the inspection, an appraiser employs two or three approaches when determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

This is where we analyze information on local construction costs, labor rates and other factors to determine how much it would cost to replace the property being appraised. This estimate commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers get to know the communities in which they appraise. We thoroughly understand the value of particular features to the people of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject 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 adjust the comparable properties so that they are more accurately in line with the features of subject.

For example, if 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.
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.

A true estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. The sales comparison approach to value is usually given the most consideration 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 - we may use an additional approach to value. In this scenario, the amount of income the property produces is factored in with income produced by comparable properties to derive the current value.

Arriving at a Value Conclusion

Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's 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'. 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 case they had to put the property on the market again. At the end of the day: An appraiser from Hanamura Appraisal Company will guarantee you attain the most accurate property value, so you can make wise real estate decisions.