Decoding the Appraisal Process
A home purchase can be the most important financial decision most people could ever encounter. Whether it's a main residence, an additional vacation home or an investment, purchasing real property is a complex transaction that requires multiple parties to pull it all off.
Practically all the participants are quite familiar. The real estate agent is the most recognizable entity in the transaction. Next, the mortgage company provides the financial capital necessary to bankroll the transaction. And ensuring all areas of the sale are completed and that the title is clear to pass from the seller to the buyer is the title company.
So, what party makes sure the value of the property is consistent with the amount being paid? This is where you meet 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 inspection
Our first responsibility at Premier Appraisal of SoCal is to inspect the property to ascertain its true status. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly exist and are in the condition a reasonable person would expect them to be. To ensure the stated size of the property is accurate and illustrate the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.
Following the inspection, an appraiser uses two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.
Here, we analyze information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This value usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.
Analyzing Comparable Sales
Appraisers can tell you a lot about the communities in which they appraise. They innately understand the value of certain 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. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they more accurately portray the features of subject.
After all differences have been accounted for, 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 valuing features of homes in Mission Viejo and Orange, Premier Appraisal of SoCal is your local authority. The sales comparison approach to value is typically awarded the most consideration when an appraisal is for a home exchange.
Valuation Using the Income Approach
A third way of valuing a property is sometimes employed when an area has a reasonable number of rental properties. In this case, the amount of income the real estate produces is taken into consideration along with income produced by nearby properties to give an indicator of the current value.
Arriving at a Value Conclusion
Examining the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the subject property. It is important to note that while the appraised value is probably the most reliable indication of what a house is worth, it probably will not be the price at which the property closes. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing price 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 Premier Appraisal of SoCal will help you attain the most fair and balanced property value, so you can make wise real estate decisions.