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What are the components of an appraisal?

Acquiring real estate is the most significant transaction many people might ever make. It doesn't matter if it's a primary residence, a seasonal vacation property or an investment, the purchase of real property is a detailed financial 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 having a role in the transaction. The real estate agent is the most recognizable person in the exchange. Next, the lender provides the money necessary to bankroll the deal. Ensuring all requirements of the transaction are completed and that a clear title passes to the buyer from the seller is the title company.

So what party makes sure the property is consistent with the amount being paid?   In comes the appraiser.   We provide an unbiased opinion 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 Minnesota licensed appraiser from Property Services/Otter Tail Appraisals will ensure you as an interested party are informed.

Appraisals start with the home inspection

Our first responsibility at Property Services/Otter Tail Appraisals is to inspect the property to ascertain its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they really are present and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the property.

Once the site has been inspected, 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

This is where we analyze information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This estimate often sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers become very familiar with the subdivisions in which they work. We thoroughly understand the value of specific features to the people of that area. Then, the appraiser researches recent sales in the neighborhood and finds properties which are 'comparable' to the home at hand. Using knowledge of the value of certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we adjust the comparable properties so that they more accurately portray the features of subject.

  • Say, for example, the comparable has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable.
  • However, 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.
At Property Services/Otter Tail Appraisals, we are an authority in knowing the value of real estate features in Battle Lake and Otter Tail County neighborhoods. The sales comparison approach to value is commonly awarded the most weight 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 method of valuing real estate. In this case, the amount of revenue the real estate yields is taken into consideration along with income produced by nearby properties to give an indicator of the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to state an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property could sell for in an open market. 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 typically employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to put the property on the market again. It all comes down to this: An appraiser from Property Services/Otter Tail Appraisals will help you discover the most fair and balanced property value, so you can make wise real estate decisions.