What Are the Parts of an Appraisal?
Their home's purchase is the most serious transaction most of us may ever consider. Whether it's a main residence, a seasonal vacation home or a rental fixer upper, the purchase of real property is a detailed transaction that requires multiple people working in concert to pull it all off.
Most of the parties participating are quite familiar. The most recognizable person in the transaction is the real estate agent. Then, the mortgage company provides the money needed to bankroll the exchange. And ensuring all aspects of the exchange are completed and that a clear title passes from the seller to the buyer is the title company.
So, who's responsible for making sure the value of the real estate is consistent with the purchase price? 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 Mike's Appraisals will ensure, you as an interested party, are informed.
Inspecting the subject property
To determine an accurate status of the property, it's our duty to first perform a thorough inspection. We must physically view features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are present and are in the condition a typical buyer would expect them to be. To make sure the stated size of the property has not been misrepresented and illustrate the layout of the house, the inspection often includes 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, 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.
This is where we analyze information on local building costs, the cost of labor and other factors to calculate how much it would cost to replace the property being appraised. This value often sets the upper limit on what a property would sell for. It's also the least used method.
Analyzing Comparable Sales
Appraisers become very familiar with the subdivisions in which they appraise. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate being appraised. By assigning a dollar value to certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.
In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Mike's Appraisals, we are experts when it comes to knowing the value of particular items in Garden Grove and Orange County neighborhoods. The sales comparison approach to value is commonly 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 applied when a neighborhood has a reasonable number of rental properties. In this case, the amount of income the property produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.
The Bottom Line
Analyzing the data 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 a property's valueDepending 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.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. Here's what it all boils down to, an appraiser from Mike's Appraisals will guarantee you get the most accurate property value, so you can make the most informed real estate decisions.