What Are the Parts of an Appraisal?
Buying a house is the biggest financial decision most people may ever encounter. It doesn't matter if where you raise your family, a second vacation property or an investment, the purchase of real property is a complex financial transaction that requires multiple people working in concert to see it through.
Practically all the participants are very familiar. The real estate agent is the most recognizable face in the exchange. Next, the lender provides the money needed to fund the deal. The title company ensures that all details of the transaction are completed and that a clear title transfers to the buyer from the seller.
So, what party is responsible for making sure the real estate is worth the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Bowers Real Estate & Appraisal Services will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
Our first duty at Bowers Real Estate & Appraisal Services is to inspect the property to ascertain its true status. We must actually view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the shape a reasonable person 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 looks for any obvious amenities - or defects - that would affect the value of the house.
Back at the office, an appraiser uses two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.
Here, the appraiser gathers information on local construction costs, labor rates and other factors to figure out 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. It's also the least used predictor of value.
Appraisers can tell you a lot about the communities in which they work. They innately understand the value of certain features to the residents of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to certain items such as upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately match the features of subject.
After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Bowers Real Estate & Appraisal Services, we are an authority in knowing the value of real estate features in Los Angeles and Los Angeles County neighborhoods. The sales comparison approach to value is most often given the most importance when an appraisal is for a home sale.
Valuation Using the Income Approach
A third way of valuing a house is sometimes employed when a neighborhood has a reasonable number of renter occupied properties. In this situation, the amount of revenue the property generates is factored in with other rents in the area for comparable properties to derive the current value.
Putting It All Together
Examining the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. Note: While the appraised value is probably the best indication of what a house is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. 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. At the end of the day, an appraiser from Bowers Real Estate & Appraisal Services will guarantee you discover the most accurate property value, so you can make wise real estate decisions.