Real Estate Appraisals: A Primer

Their home's purchase can be the biggest investment most of us may ever consider. Whether it's where you raise your family, a seasonal vacation property or a rental fixer upper, purchasing real property is an involved financial transaction that requires multiple people working in concert to see it through.

You're likely to be familiar with the parties taking part in the transaction. The most known face in the exchange is the real estate agent. Then, the lender provides the money required to bankroll the transaction. The title company sees to it that all aspects of the sale are completed and that the title is clear to pass to the buyer from the seller.

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

So, who makes sure the property is worth the purchase price? In comes 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 Cloudview Appraisals, Inc. will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

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, and so on, to ensure they truly are present and are in the shape a reasonable buyer would expect them to be. To make sure the stated square footage has not been misrepresented and illustrate the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - or defects - that would have an impact on the value of the house.

Next, after the inspection, we use two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, the appraiser analyzes information on local construction costs, the cost of labor and other factors to determine how much it would cost to build a property nearly identical to the one being appraised. This value often sets the maximum on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers get to know the neighborhoods in which they work. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the home in question. 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 more accurately portray the features of subject.

  • Say, for example, the comparable property has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
  • However, 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.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Cloudview Appraisals, Inc., we are experts in knowing the worth of real estate features in Santa Barbara and Ventura County neighborhoods. This approach to value is typically awarded the most consideration when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes applied when an area has a measurable number of renter occupied properties. In this scenario, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to determine the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. Note: While the appraised value is probably the best indication of what a house is worth, it may not be the final sales price. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is typically 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. The bottom line is, an appraiser from Cloudview Appraisals, Inc. will guarantee you attain the most fair and balanced property value, so you can make profitable real estate decisions.