Real Estate Appraisals: A Primer

Purchasing a house can be the most significant investment some will ever make. Whether it's where you raise your family, a seasonal vacation home or one of many rentals, the purchase of real property is a complex transaction that requires multiple people working in concert to make it all happen.

Most of the people participating are very familiar. The real estate agent is the most familiar person in the transaction. Next, the lender provides the money needed to bankroll the deal. And ensuring all areas of the exchange are completed and that the title is clear to pass from the seller to the buyer is the title company.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, what party 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 JMS Appraisal 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 responsibility to first perform a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the condition 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 home, the inspection often entails creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the property.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

Here, the appraiser pulls information on local construction costs, labor rates and other factors to figure out how much it would cost to build a property similar to the one being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers can tell you a lot about the communities in which they work. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. By assigning a dollar value to 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 more accurately portray the features of subject.

  • For example, if the comparable has an irrigation system and the subject doesn't, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
  • But, in the case where the subject has something such as an extra half bath that a comparable doesn't have, the appraiser might add the value of that bath 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 putting a value on features of homes in Aliso Viejo and Orange, JMS Appraisal can't be beat. This approach to value is most often awarded the most weight when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional way of valuing real estate. In this case, the amount of income the real estate produces is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Coming Up With The Final Value

Examining the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property in question. Note: While the appraised value is probably the most reliable indication of what a house is worth, it may not be the price at which the property closes. Depending on the specific situations 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.But the appraised value is often used 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 JMS Appraisal will guarantee you discover the most accurate property value, so you can make the most informed real estate decisions.