What Are the Components of an Appraisal?

Acquiring a home can be the most significant financial decision many of us may ever make. Whether it's where you raise your family, a seasonal vacation home or an investment, purchasing real property is a detailed transaction that requires multiple parties to make it all happen.

Practically all the participants are very familiar. The real estate agent is the most known entity in the transaction. Next, the mortgage company provides the financial capital necessary to fund the deal. And the title company makes sure that all requirements of the exchange are completed and that a clear title transfers from the seller to the purchaser.

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 value of the real estate is in line with the purchase price? This is where you meet the appraiser. We provide an unbiased estimate of what a buyer might expect to pay — or a seller receive — for a property, 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.

The inspection is where an appraisal begins

To ascertain an accurate status of the property, it's our duty to first complete a thorough inspection. We must physically see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are present and are in the condition a typical buyer would expect them to be. To ensure the stated square footage has not been misrepresented and illustrate the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.

Once the site has been inspected, we use 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

This is where the appraiser analyzes information on local building costs, labor rates and other factors to calculate how much it would cost to build a property similar 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.

Sales Comparison

Appraisers become very familiar with the neighborhoods in which they work. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

  • For example, if the comparable property has a storm shelter and the subject does not, the appraiser may subtract the value of a storm shelter from the sales price of the comparable.
  • 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 might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Premier Appraisal of SoCal, we are experts in knowing the worth of particular items in Mission Viejo and Orange County neighborhoods. This approach to value is usually given the most consideration when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third approach to value. In this scenario, the amount of revenue the property yields is factored in with other rents in the area for comparable properties to determine the current value.

Arriving at a Value Conclusion

Analyzing the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value on 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. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is often employed 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 Premier Appraisal of SoCal will help you discover the most accurate property value, so you can make the most informed real estate decisions.