Decoding the Appraisal Process
A home purchase can be the most important investment most of us may ever encounter. Whether it's a main residence, a seasonal vacation property or a rental fixer upper, the purchase of real property is a detailed financial transaction that requires multiple parties to pull it all off.
The majority of the people involved are quite familiar. The real estate agent is the most recognizable entity in the exchange. Next, the mortgage company provides the financial capital necessary to fund the transaction. And ensuring all details of the exchange are completed and that a clear title transfers to the buyer from the seller is the title company.
So, who makes sure the property is worth the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Larry Scott Appraisal Service will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first duty at Larry Scott Appraisal Service is to inspect the property to ascertain its true status. We must see features first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are there and are in the shape a reasonable person would expect them to be. To make sure the stated size of the property has not been misrepresented and document the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the property.
Back at the office, we use 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.
This is where the appraiser analyzes information on local building costs, labor rates and other factors to calculate how much it would cost to construct a property similar to the one 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.
Paired Sales Analysis
Appraisers are intimately familiar with the communities in which they work. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in the area and finds properties which are 'comparable' to the property being appraised. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject 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 knowing the true worth of features of homes in Yorba Linda and Orange, Larry Scott Appraisal Service is your local authority. The sales comparison approach to value is usually given the most weight when an appraisal is for a home exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - we may use an additional method of valuing real estate. In this situation, the amount of revenue the real estate generates is taken into consideration along with other rents in the area for comparable properties to determine the current value.
Coming Up With The Final Value
Examining the data from all approaches, the appraiser is then ready to put down an estimated market value for the property at hand. Note: While this amount is probably the best indication of what a property is worth, it probably will not be the price at which the property closes. Depending on the individual 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 often used as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to put the property on the market again. Here's what it all boils down to, an appraiser from Larry Scott Appraisal Service will help you attain the most accurate property value, so you can make profitable real estate decisions.