Real Property Appraisals: A Primer

Buying a home can be the biggest transaction most of us could ever make. It doesn't matter if where you raise your family, a second vacation property or an investment, purchasing real property is a detailed transaction that requires multiple parties to see it through.

It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most recognizable face in the transaction. Then, the lender provides the financial capital required to fund the deal. And ensuring all areas of the transaction are completed and that a clear title passes to the buyer from the seller 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, who's responsible for making sure the value of the property is in line with the purchase price? In comes the appraiser. We provide an unbiased estimate of what a buyer might 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 Gaile Spalione will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain the true status of the property, it's our duty to first perform a thorough inspection. We must see aspects of the property first hand, 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 buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and conveying the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the property.

Back at the office, we use two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where we analyze information on local construction costs, the cost of labor and other elements to calculate how much it would cost to replace the property being appraised. This estimate usually sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers become very familiar with the subdivisions in which they work. They thoroughly understand the value of certain features to the residents of that area. Then, the appraiser looks up recent transactions in the neighborhood and finds properties which are 'comparable' to the home at hand. By assigning a dollar value to certain items such as square footage, additional 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.

  • If, for example, the comparable property has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
  • 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.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to valuing features of homes in Newhall and Los Angeles, Gaile Spalione is second to none. This approach to value is most often awarded the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes employed when a neighborhood has a reasonable number of renter occupied properties. In this case, the amount of revenue the real estate yields is taken into consideration along with income produced by neighboring properties to determine the current value.

Putting It All Together

Analyzing the data from all approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But the appraised value is often 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 Gaile Spalione will help you discover the most fair and balanced property value, so you can make wise real estate decisions.