Comprehending Appraisals

Acquiring a house is the largest investment most of us may ever consider. It doesn't matter if where you raise your family, a second vacation property or an investment, the purchase of real property is an involved transaction that requires multiple people working in concert to make it all happen.

You're probably familiar with the parties having a role in the transaction. The real estate agent is the most familiar face in the exchange. Next, the bank provides the money necessary to bankroll the exchange. And ensuring all areas of the sale are completed and that the title is clear to transfer to the buyer from the seller is the title company.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, what party is responsible for making sure the property is worth the amount being paid? In comes the appraiser. We provide an unbiased estimate 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 licensed, certified, professional appraiser from SoCal Appraisal & Home Inspections will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first task at SoCal Appraisal & Home Inspections is to inspect the property to ascertain its true status. We must actually see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are present and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.

Next, after the inspection, we use two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where the appraiser analyzes information on local construction costs, labor rates and other factors to determine 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. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers become very familiar with the subdivisions in which they work. They innately understand the value of particular 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 in question. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, 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.

  • Say, for example, the comparable property has an extra half bath that the subject does not, the appraiser may deduct the value of that half bath from the sales price of the comparable.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount 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. At SoCal Appraisal & Home Inspections, we are an authority in knowing the worth of real estate features in Riverside and Riverside County neighborhoods. The sales comparison approach to value is commonly awarded the most consideration when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes applied when an area has a reasonable number of renter occupied properties. In this scenario, the amount of income the property generates is taken into consideration along with income produced by neighboring properties to determine the current value.

Arriving at a Value Conclusion

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property is worth. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing price up or down. Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from SoCal Appraisal & Home Inspections will help you attain the most fair and balanced property value, so you can make wise real estate decisions.