Home Appraisals: A Primer
Their home's purchase can be the most serious financial decision many will ever make. Whether it's a main residence, a second vacation home or one of many rentals, the purchase of real property is a complex financial transaction that requires multiple people working in concert to see it through.
Most of the parties participating are very familiar. The real estate agent is the most recognizable entity in the transaction. Then, the bank provides the money needed to finance the transaction. And the title company makes sure that all aspects of the exchange are completed and that the title is clear to transfer to the buyer from the seller.
So, who's responsible for making sure the value of the property 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 licensed, certified, professional appraiser from The Appraisal Service will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first duty at The Appraisal Service is to inspect the property to ascertain its true status. We must see aspects of the property first hand, 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. To ensure the stated size of the property has not been misrepresented and describe the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the house.
Next, after the inspection, an appraiser uses two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
This is where the appraiser analyzes information on local construction costs, the cost of labor and other elements to calculate how much it would cost to build a property comparable to the one being appraised. This value often sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.
Analyzing Comparable Sales
Appraisers are intimately familiar with the neighborhoods in which they appraise. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the subject at hand. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject property.
A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At The Appraisal Service, we are experts when it comes to knowing the value of particular items in La Jolla and San Diego County neighborhoods. This approach to value is most often awarded the most consideration when an appraisal is for a home purchase.
Valuation Using the Income Approach
A third way of valuing a house is sometimes applied when an area has a reasonable number of rental properties. In this case, the amount of revenue the real estate yields is factored in with income produced by neighboring properties to derive the current value.
Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. Note: While this amount is probably the most reliable indication of what a house is worth, it may not be the final sales price. 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 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. It all comes down to this, an appraiser from The Appraisal Service will guarantee you discover the most fair and balanced property value, so you can make wise real estate decisions.