Real Property Appraisals: A Primer

Buying a home can be the most important investment many might ever encounter. Whether it's a primary residence, a second vacation home or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple people working in concert to pull it all off.

Most people are familiar with the parties taking part in the transaction. The most known person in the transaction is the real estate agent. Then, the bank provides the money needed to fund the deal. And ensuring all aspects of the sale are completed and that a clear title passes to the buyer from the seller is the title company.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, who's responsible for making sure the property is worth the purchase price? In comes 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 Premier Appraisal of SoCal will ensure, you as an interested party, are informed.

Appraisals begin with the home inspection

To ascertain the true status of the property, it's our responsibility to first conduct a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really exist and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the property.

Back at the office, we use two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, we analyze information on local building costs, labor rates and other factors to figure out how much it would cost to construct a property similar to the one being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers become very familiar with the neighborhoods in which they work. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the subject at hand. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, 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 home.
  • 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.

An opinion 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 an authority when it comes to knowing the value of real estate features in Mission Viejo and Orange County neighborhoods. This approach to value is commonly awarded the most consideration when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third way of valuing a property is sometimes applied when an area has a measurable number of renter occupied properties. In this situation, the amount of income the property produces is taken into consideration along with other rents in the area for comparable properties to determine the current value.

Arriving at a Value Conclusion

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the subject property. Note: While this amount is probably the most accurate indication of what a house is worth, it probably will not be the price at which the property closes. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But 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. At the end of the day, an appraiser from Premier Appraisal of SoCal will help you discover the most accurate property value, so you can make wise real estate decisions.