Real Estate Appraisals: A Primer

Acquiring a home can be the largest financial decision many might ever make. It doesn't matter if a main residence, a second vacation property or a rental fixer upper, the purchase of real property is an involved financial transaction that requires multiple people working in concert to pull it all off.

You're probably familiar with the parties having a role in the transaction. The real estate agent is the most known person in the transaction. Next, the lender provides the money required to fund the exchange. The title company ensures that all aspects of the exchange are completed and that a clear title transfers to the buyer from the seller.

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So, what party makes sure the real estate is worth the amount being paid? This is where you meet 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 1st Quality Appraisals, Inc will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To ascertain an accurate status of the property, it's our duty to first conduct a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are there and are in the shape a reasonable person would expect them to be. To make sure the stated square footage 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 amenities - or defects - that would have an impact on the value of the house.

Next, after the inspection, we use 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.

Replacement Cost

Here, the appraiser analyzes information on local construction costs, labor rates and other factors to ascertain how much it would cost to construct a property comparable to the one being appraised. This estimate usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers can tell you a lot about the subdivisions in which they appraise. They innately understand the value of specific features to the people of that area. Then, the appraiser looks up recent sales in the vicinity and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they more accurately match the features of subject property.

  • For example, if the comparable 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.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to putting a value on features of homes in Beaumont and San Bernardino, 1st Quality Appraisals, Inc can't be beat. This approach to value is most often given the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes used when a neighborhood has a measurable number of rental properties. In this situation, the amount of revenue the property yields is factored in with other rents in the area for comparable properties to derive the current value.

Reconciliation

Examining the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. Note: While this amount is probably the best indication of what a house is worth, it probably will not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. But the appraised value is often employed 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 sell the property again. It all comes down to this, an appraiser from 1st Quality Appraisals, Inc will help you attain the most accurate property value, so you can make profitable real estate decisions.