A Description of the Appraisal Process
Buying real estate can be the most significant transaction many of us could ever consider. Whether it's a primary residence, an additional vacation property or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple parties to make it all happen.
Most of the participants are quite familiar. The most known face in the exchange is the real estate agent. Next, the lender provides the financial capital needed to bankroll the deal. And the title company ensures that all aspects of the sale are completed and that the title is clear to pass from the seller to the buyer.
So, who's responsible for making sure the real estate is worth the amount being paid? This is where you meet the appraiser. We provide an unbiased opinion of what a buyer could 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 Young Real Estate Appraisals will ensure, you as an interested party, are informed.
The inspection is where an appraisal begins
To determine the true status of the property, it's our duty to first complete a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present and are in the condition a typical buyer would expect them to be. To make sure the stated square footage is accurate and describe the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.
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.
Here, we pull information on local building costs, labor rates and other elements to figure out how much it would cost to construct a property comparable to the one being appraised. This figure often sets the upper limit on what a property would sell for. The cost approach is also the least used method.
Analyzing Comparable Sales
Appraisers can tell you a lot about the neighborhoods in which they appraise. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the subject being appraised. 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 adjust the comparable properties so that they are more accurately in line with the features of subject 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. At Young Real Estate Appraisals, we are experts in knowing the value of particular items in Palm Desert and Riverside County neighborhoods. The sales comparison approach to value is usually awarded the most consideration when an appraisal is for a home purchase.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use an additional method of valuing real estate. In this scenario, the amount of revenue the property produces is factored in with income produced by nearby properties to give an indicator of the current value.
Coming Up With The Final Value
Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the property at hand. It is important to note that while the appraised value is probably the strongest indication of what a property is worth, it may not be the price at which the property closes. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. But 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 sell the property again. Here's what it all boils down to, an appraiser from Young Real Estate Appraisals will help you attain the most accurate property value, so you can make wise real estate decisions.