What Are the Parts of an Appraisal?
Acquiring a home is the most significant transaction some might ever consider. Whether it's where you raise your family, a second vacation property or an investment, the purchase of real property is a detailed financial transaction that requires multiple parties to see it through.
Practically all the participants are very familiar. The most known entity in the exchange is the real estate agent. Then, the bank provides the financial capital necessary to bankroll the exchange. And ensuring all requirements of the exchange are completed and that a clear title passes to the buyer from the seller is the title company.
So, who's responsible for making sure the value of the real estate is consistent with the amount being paid? 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 All City Appraisal will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
Our first duty at All City Appraisal is to inspect the property to ascertain its true status. 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 buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the house.
Back at the office, 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.
Here, we pull information on local construction costs, labor rates and other elements to figure out how much it would cost to replace the property being appraised. This figure often sets the maximum on what a property would sell for. It's also the least used predictor of value.
Appraisers become very familiar with the neighborhoods in which they appraise. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser looks up recent transactions in the neighborhood and finds properties which are 'comparable' to the subject being appraised. By assigning a dollar value to 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 more accurately portray the features of subject.
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. When it comes to associating a value with features of homes in Woodland Hills and Los Angeles, All City Appraisal can't be beat. This approach to value is usually awarded the most consideration 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 situation, the amount of revenue the property produces is taken into consideration along with income produced by nearby properties to derive the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. 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. Depending on the individual situations 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 they could get back in the event they had to put the property on the market again. At the end of the day, an appraiser from All City Appraisal will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.