What Goes Into an Appraisal?

A home purchase is the most significant investment some might ever encounter. It doesn't matter if a main residence, a seasonal vacation home or one of many rentals, purchasing real property is an involved transaction that requires multiple people working in concert to make it all happen.

Most people are familiar with the parties having a role in the transaction. The most recognizable face in the transaction is the real estate agent. Next, the lender provides the money required to bankroll the exchange. And ensuring all aspects of the transaction are completed and that the title is clear to pass 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 makes sure the value of the real estate is consistent with the purchase price? In comes the appraiser. 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 licensed, certified, professional appraiser from Homeward Bound Appraisal Services will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

To determine an accurate status of the property, it's our duty to first conduct a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the condition a typical person would expect them to be. To make sure the stated size of the property is accurate and document the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the house.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

Here, we use information on local building costs, the cost of labor and other factors to figure out how much it would cost to construct a property nearly identical to the one being appraised. This estimate often sets the upper limit on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers can tell you a lot about the subdivisions in which they work. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, 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 property has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
  • 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.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Homeward Bound Appraisal Services, we are an authority in knowing the worth of particular items in Whittier and Los Angeles County neighborhoods. This approach to value is usually awarded the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third method of valuing a house is sometimes employed when an area has a reasonable number of rental properties. In this situation, the amount of income the real estate generates is taken into consideration along with other rents in the area for comparable properties to determine the current value.

Reconciliation

Examining the data from all approaches, the appraiser is then ready to state an estimated market value for the subject property. It is important to note that while this amount is probably the most accurate indication of what a property is worth, it probably will not be the final sales price. Depending on the specific 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 the property is actually worth. At the end of the day, an appraiser from Homeward Bound Appraisal Services will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.