What are the components of an appraisal?

Purchasing a house can be the most important financial decision many of us could ever consider. Whether it's where you raise your family, an additional vacation home or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple people working in concert to pull it all off.


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Most of the participants are quite familiar. The most known entity in the transaction is the real estate agent. Next, the mortgage company provides the money needed to fund the deal. Ensuring all aspects of the sale are completed and that the title is clear to pass to the buyer from the seller is the title company.

So who makes sure the value of the real estate is consistent with the purchase price? In comes the appraiser. 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 Indiana licensed appraiser from Guhl & Associates, LLC will ensure you as an interested party are informed.

The inspection is where an appraisal begins

Our first responsibility at Guhl & Associates, LLC is to inspect the property to determine its true status. We must actually see features, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they indeed exist and are in the condition a typical 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, we identify any obvious amenities - or defects - that would have an impact on the value of the house.

Following the inspection, 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.

Cost Approach

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

Sales Comparison

Appraisers get to know the neighborhoods in which they appraise. We thoroughly understand the value of certain features to the people 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 being appraised. 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.

For example, if the comparable has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system from the sales price of the comparable.
However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount 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. The sales comparison approach to value is most often awarded the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third approach to value. In this case, the amount of income the real estate yields is taken into consideration along with other rents in the area for comparable properties to determine the current value.

Putting It All Together

Analyzing the data from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. Note: While the appraised value is probably the strongest indication of what a property would sell for in an open market, it probably will not be the price at which the property closes. 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 the property would likely sell for in an open marketplace. The bottom line is: An appraiser from Guhl & Associates, LLC will help you get the most accurate property value, so you can make wise real estate decisions.