What Goes Into an Appraisal?

Their home's purchase is the most serious investment some people might ever consider. Whether it's where you raise your family, a seasonal vacation property or an investment, purchasing real property is an involved financial transaction that requires multiple people working in concert to make it all happen.

The majority of the parties involved are very familiar. The real estate agent is the most recognizable person in the transaction. Next, the mortgage company provides the financial capital required to bankroll the transaction. The title company makes sure that all areas of the transaction are completed and that the title is clear to pass from the seller to the purchaser.

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So, what party is responsible for making sure the property is worth the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer might 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 Douglas Gonzalez will ensure, you as an interested party, are informed.

Appraisals start with the property inspection

To determine an accurate status of the property, it's our duty to first conduct a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are present and are in the condition a typical buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the property.

Next, after 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.

Cost Approach

Here, the appraiser analyzes information on local building costs, labor rates and other factors to figure out how much it would cost to build a property comparable to the one being appraised. This value commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers are intimately familiar with the neighborhoods in which they appraise. They innately understand the value of certain features to the people of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject.

  • If, for example, the comparable property has an extra half bath that the subject does not, the appraiser may subtract the value of that half bath from the sales price of the comparable.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Douglas Gonzalez, we are an authority when it comes to knowing the worth of particular items in Upland and San Bernardino County neighborhoods. This approach to value is typically given the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third way of valuing a property is sometimes employed when an area has a reasonable number of renter occupied properties. In this case, the amount of income the property produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Arriving at a Value Conclusion

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property is worth. Depending on the individual situations 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 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 Douglas Gonzalez will help you attain the most accurate property value, so you can make profitable real estate decisions.