Real Property Appraisals: A Primer
Getting a house can be the biggest financial decision most might ever encounter. Whether it's where you raise your family, a seasonal vacation home or a rental fixer upper, the purchase of real property is a detailed transaction that requires multiple parties to pull it all off.
It's likely you are familiar with the parties taking part in the transaction. The most recognizable entity in the exchange is the real estate agent. Then, the lender provides the money needed to bankroll the deal. The title company ensures that all aspects of the exchange are completed and that a clear title transfers from the seller to the purchaser.
So, who's responsible for making sure the real estate is worth the purchase price? This is where you meet the appraiser. We provide an unbiased estimate 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 JMS Appraisal will ensure, you as an interested party, are informed.
Inspecting the subject property
To determine an accurate status of the property, it's our responsibility to first conduct a thorough inspection. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the shape a reasonable buyer would expect them to be. To ensure the stated square footage is accurate and illustrate the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the property.
Next, after the inspection, 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 pulls information on local construction costs, the cost of labor and other factors to determine how much it would cost to replace the property being appraised. This figure often sets the maximum on what a property would sell for. The cost approach is also the least used method.
Appraisers are intimately familiar with the subdivisions in which they work. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser researches recent transactions 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 fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they more accurately portray the features of subject.
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 associating a value with features of homes in Aliso Viejo and Orange, JMS Appraisal can't be beat. The sales comparison approach to value is commonly awarded the most importance when an appraisal is for a home exchange.
Valuation Using the Income Approach
A third way of valuing real estate is sometimes used when an area has a reasonable number of renter occupied properties. In this situation, the amount of revenue the property yields is factored in with income produced by similar properties to give an indicator of the current value.
Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While this amount is probably the most reliable indication of what a property is worth, it probably will not be the final sales price. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing 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. Here's what it all boils down to, an appraiser from JMS Appraisal will guarantee you attain the most fair and balanced property value, so you can make the most informed real estate decisions.