Understanding Appraisals

Their home's purchase can be the largest transaction some of us will ever encounter. It doesn't matter if where you raise your family, an additional vacation home or an investment, the purchase of real property is a detailed financial transaction that requires multiple parties to make it all happen.

Practically all the parties involved are quite familiar. The real estate agent is the most recognizable face in the exchange. Then, the mortgage company provides the money required to bankroll the transaction. And the title company makes sure that all requirements of the transaction are completed and that a clear title passes from the seller to the purchaser.

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So, what party makes sure the property is worth the amount being paid? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Los Angeles Appraisal Group will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at Los Angeles Appraisal Group is to inspect the property to ascertain its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are there and are in the condition a typical person would expect them to be. To make sure the stated size of the property has not been misrepresented and illustrate the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would affect the value of the house.

Next, after the inspection, an appraiser uses two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

This is where the appraiser pulls information on local building costs, labor rates and other elements to determine how much it would cost to build a property comparable to the one being appraised. This estimate often sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Analyzing Comparable Sales

Appraisers become very familiar with the subdivisions in which they appraise. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the home at hand. By assigning a dollar value to certain items such as square footage, additional 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 more accurately portray the features of subject.

  • For example, if the comparable has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
  • But, 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 could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to valuing features of homes in Santa Clarita and Los Angeles, Los Angeles Appraisal Group is second to none. This approach to value is typically given the most weight when an appraisal is for a home sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional way of valuing a house. In this scenario, the amount of income the property yields is taken into consideration along with income produced by similar properties to give an indicator of the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. Depending on the individual circumstances 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 often employed 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 Los Angeles Appraisal Group will guarantee you discover the most accurate property value, so you can make wise real estate decisions.