What goes into an appraisal?

A home purchase is the most significant investment many people may ever encounter. It doesn't matter if it's a main residence, an additional vacation home or an investment, purchasing real property is an involved transaction that requires multiple people working in concert 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.


Most people are familiar with the parties taking part in the transaction. The most known entity in the transaction is the real estate agent. Then, the lender provides the financial capital needed to bankroll the transaction. Ensuring all aspects of the exchange 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 property is in line 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 property, where both buyer and seller are informed parties. A professional Minnesota licensed appraiser from Northland Appraisal Service will ensure you as an interested party are informed.

Inspecting the subject property

To determine the true status of the property, it's our responsibility to first perform a thorough inspection. We must physically see features, 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 reasonable person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the house.

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

Cost Approach

Here, we use information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers can tell you a lot about the subdivisions in which they appraise. We innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as upgraded appliances, additional 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 property.

  • For example, if the comparable has an extra half bath that the subject does not, the appraiser may subtract the value of that half bath from the sales price of the comparable.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add an 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. This approach to value is usually given the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third method of valuing a house. In this case, the amount of income the property produces is factored in with other rents in the area for comparable properties to determine the current value.

Putting It All Together

Examining the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. Note: While this amount is probably the most reliable indication of what a property would sell for in an open market, it may not be the price at which the property closes. Depending on the individual circumstances 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 often used as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to put the property on the market again. Here's what it all boils down to: An appraiser from Northland Appraisal Service will help you discover the most accurate property value, so you can make the most informed real estate decisions.