Home Appraisals: A Primer
Their home's purchase can be the most serious transaction many people will ever consider. Whether it's a main residence, an additional vacation property or a rental fixer upper, the purchase of real property is an involved financial transaction that requires multiple parties to see it through.
You're likely to be familiar with the parties having a role in the transaction. The real estate agent is the most known face in the transaction. Next, the lender provides the financial capital required to fund the transaction. And the title company makes sure that all requirements of the exchange are completed and that a clear title transfers to the buyer from the seller.
So, who makes sure the value of the property is in line with the amount being paid? This is where the appraiser comes in. We provide an unbiased opinion 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 Sharp Appraisals 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 see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present and are in the shape a reasonable buyer would expect them to be. To make sure the stated square footage has not been misrepresented and illustrate the layout of the property, 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 house.
After the inspection, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.
Here, the appraiser uses information on local construction costs, the cost of labor and other elements to calculate how much it would cost to build a property nearly identical to the one being appraised. This figure usually 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 can tell you a lot about the neighborhoods in which they work. They innately understand the value of specific features to the residents of that area. Then, the appraiser researches 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 fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject 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 Sharp Appraisals, we are experts when it comes to knowing the value of real estate features in Yorba Linda and Orange County neighborhoods. This approach to value is usually awarded the most importance 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 a third way of valuing real estate. In this situation, the amount of revenue the real estate generates is factored in with income produced by similar properties to determine the current value.
Analyzing the data from all approaches, the appraiser is then ready to state an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it probably will not be the final sales price. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from Sharp Appraisals will guarantee you get the most fair and balanced property value, so you can make wise real estate decisions.