Making Sense of the Appraisal Process

Their home's purchase can be the most important investment some people might ever encounter. Whether it's a main residence, a seasonal vacation property or an investment, purchasing real property is an involved financial transaction that requires multiple people working in concert to see it through.

Most people are familiar with the parties taking part in the transaction. The real estate agent is the most recognizable face in the transaction. Next, the bank provides the financial capital required to bankroll the deal. And the title company sees to it that all details of the transaction are completed and that the title is clear to transfer from the seller to the purchaser.

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So, who's responsible for making sure the property 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from American Appraisal, Inc. will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first responsibility at American Appraisal, Inc. is to inspect the property to determine its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly exist and are in the shape a reasonable buyer would expect them to be. To ensure the stated square footage has not been misrepresented and describe the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser identifies 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 the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

This is where the appraiser gathers information on local construction costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This estimate commonly sets the maximum on what a property would sell for. The cost approach is also the least used predictor of value.

Analyzing Comparable Sales

Appraisers get to know the subdivisions in which they appraise. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales 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 property.

For example, if the comparable property has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace 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.

An opinion 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 Bakersfield and Kern, American Appraisal, Inc. can't be beat. The sales comparison approach to value is commonly given the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes used when a neighborhood has a measurable number of rental properties. In this situation, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to determine the current value.

Arriving at a Value Conclusion

Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property in question. It is important to note that while the appraised value is probably the most reliable indication of what a house is worth, it may 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'. But 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 American Appraisal, Inc. will help you discover the most accurate property value, so you can make profitable real estate decisions.