What Is an Appraisal?

Their home's purchase is the largest investment some of us might ever consider. It doesn't matter if where you raise your family, a second vacation property or an investment, purchasing real property is a detailed financial transaction that requires multiple parties to make it all happen.

Most people are familiar with the parties taking part in the transaction. The most recognizable face in the transaction is the real estate agent. Then, the lender provides the financial capital necessary to bankroll the deal. And ensuring all requirements of the sale are completed and that the title is clear to transfer to the buyer from the seller is the title company.

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So, what party is responsible for making sure the value of the property is in line with the amount being paid? This is where you meet 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 Premier Appraisal of SoCal will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain an accurate status of the property, it's our duty to first conduct a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the condition a reasonable person would expect them to be. To ensure the stated size of the property is accurate and convey the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the property.

Once the site has been inspected, we use two or three approaches to 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 building costs, the cost of labor and other elements to calculate how much it would cost to construct a property comparable to the one being appraised. This value usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers are intimately familiar with the communities in which they appraise. They innately understand the value of specific features to the residents 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 at hand. By assigning a dollar value to 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.

  • If, for example, the comparable property has a fireplace and the subject doesn't, the appraiser may subtract 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.

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. When it comes to valuing features of homes in Mission Viejo and Orange, Premier Appraisal of SoCal can't be beat. This approach to value is commonly given the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this scenario, the amount of revenue the property yields is factored in with income produced by comparable properties to determine the current value.

Arriving at a Value Conclusion

Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not necessarily 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 the final price up or down. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to sell the property again. At the end of the day, an appraiser from Premier Appraisal of SoCal will help you get the most accurate property value, so you can make profitable real estate decisions.