Home Appraisals: A Primer

Purchasing a home is the largest transaction some people may ever make. Whether it's where you raise your family, a seasonal vacation property or one of many rentals, purchasing real property is a complex financial transaction that requires multiple people working in concert to pull it all off.

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


Practically all the parties participating are very familiar. The real estate agent is the most recognizable entity in the exchange. Then, the mortgage company provides the financial capital necessary to bankroll the deal. Ensuring all aspects of the exchange are completed and that a clear title passes to the buyer from the seller is the title company.

So what party is responsible for making sure the value of the real estate is in line with the purchase price?   This is where the appraiser comes in.   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 professional California licensed appraiser from James Wagner will ensure you as an interested party are informed.

Appraisals begin with the property inspection

Our first task at James Wagner is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the condition a typical person would expect them to be. To ensure the stated size of the property is accurate and illustrate the layout of the home, the inspection often requires creating a sketch of the floor plan. Most importantly, we identify any obvious amenities - or defects - that would affect the value of the property.

Back at the office, we use two or three approaches when determining the value of real property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

Here, we pull information on local building costs, labor rates and other factors to calculate how much it would cost to replace the property being appraised. This value commonly sets the upper limit on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers become very familiar with the subdivisions in which they appraise. We innately understand the value of particular features to the residents of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as square footage, additional bathrooms, hardwood floors, fireplaces or view lots (just to name a few), we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject property.

  • If, for example, the comparable property has an extra half bath that the subject does not, the appraiser may subtract the value of that half bath from the sales price of the comparable home.
  • 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. The sales comparison approach to value is most often given the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional approach to value. In this case, the amount of revenue the property yields is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Reconciliation

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. Note: While the appraised value is probably the strongest indication of what a house would sell for in an open market, it may not be the final sales price. 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 they could get back in the event they had to sell the property again. Here's what it all boils down to: An appraiser from James Wagner will guarantee you attain the most accurate property value, so you can make the most informed real estate decisions.