What Is an Appraisal?

Buying a house can be the most significant financial decision most of us could ever make. Whether it's a main residence, a seasonal vacation home or an investment, purchasing real property is a complex transaction that requires multiple parties to make it all happen.

Most of the participants are quite familiar. The real estate agent is the most familiar face in the exchange. Next, the mortgage company provides the money necessary to bankroll the transaction. And ensuring all areas of the transaction are completed and that a clear title transfers from the seller to the purchaser 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 real estate is worth the amount being paid? In comes the appraiser. We provide an unbiased opinion 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 The Appraisal Firm 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 see features first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the shape a reasonable person would expect them to be. To ensure the stated square footage is accurate and convey the layout of the home, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.

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

This is where we analyze information on local construction costs, labor rates and other elements to determine how much it would cost to construct a property nearly identical to the one being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used method.

Sales Comparison

Appraisers get to know the subdivisions in which they appraise. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property at hand. Using knowledge of the value of 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.

  • For example, if the comparable has an extra half bath that the subject doesn't, the appraiser may deduct the value of that half bath from the sales price of the comparable home.
  • 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. When it comes to knowing the true worth of features of homes in Escondido and San Diego, The Appraisal Firm is your local authority. The sales comparison approach to value is usually awarded the most consideration when an appraisal is for a home sale.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes employed when an area has a reasonable number of rental properties. In this case, the amount of revenue the real estate generates is factored in with other rents in the area for comparable properties to derive the current value.

Reconciliation

Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. The estimate of value at the bottom of the appraisal report is not always the final sales price even though it is likely the best indication of a property's valueThere are always mitigating factors such as the seller's desire to get out of the property, 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 recover in the event they had to sell the property again. Here's what it all boils down to, an appraiser from The Appraisal Firm will guarantee you get the most accurate property value, so you can make wise real estate decisions.