Real Property Appraisals: A Primer

Buying real estate can be the largest transaction some of us may ever make. It doesn't matter if where you raise your family, a seasonal vacation home or an investment, the purchase of real property is an involved transaction that requires multiple people working in concert to make it all happen.

Most people are familiar with the parties taking part in the transaction. The most recognizable face in the transaction is the real estate agent. Then, the bank provides the financial capital required to fund the transaction. The title company sees to it that all aspects of the exchange are completed and that a clear title transfers from the seller to the buyer.

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So, what party makes 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 Jose Hernandez will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first duty at Jose Hernandez is to inspect the property to ascertain its true status. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the house.

Following the inspection, we use 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 uses information on local construction costs, the cost of labor and other elements to calculate how much it would cost to replace the property being appraised. This estimate usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers become very familiar with the subdivisions in which they work. They innately understand the value of particular features to the people 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. By assigning a dollar value to 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 more accurately portray the features of subject property.

  • Say, for example, the comparable property has an extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath from the sales price of the comparable home.
  • However, if the subject property 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. When it comes to valuing features of homes in Los Angeles and Los Angeles, Jose Hernandez is second to none. The sales comparison approach to value is typically given the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes employed when an area has a measurable number of rental properties. In this situation, the amount of income the real estate produces is taken into consideration along with income produced by similar 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 put down an estimated market value for the subject property. The estimate of value on 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 specific 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 typically employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Jose Hernandez will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.