Understanding the Appraisal Process

Getting real estate is the most significant financial decision most might ever consider. It doesn't matter if it's a main residence, a seasonal vacation property or an investment, the purchase of real property is an involved financial transaction that requires multiple parties to see it through.


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Most of the parties involved are very familiar. The real estate agent is the most known entity in the transaction. Then, the bank provides the financial capital needed to finance the exchange. The title company sees to it that all areas of the exchange are completed and that a clear title passes to the buyer from the seller.

So what party is responsible for making sure the property is consistent with the amount being paid? In comes the appraiser. 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 Steven Norris will ensure you as an interested party are informed.

Inspecting the subject property

Our first responsibility at Steven Norris is to inspect the property to ascertain its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are present and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, we identify any obvious features - or defects - that would affect the value of the property.

Next, after the inspection, we use two or three approaches when determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

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

Analyzing Comparable Sales

Appraisers become very familiar with the neighborhoods in which they work. We innately understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the property being appraised. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, an additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

For example, if the comparable property has an irrigation system and the subject doesn't, the appraiser may subtract 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.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. The sales comparison approach to value is commonly awarded the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third way of valuing real estate. In this scenario, the amount of revenue the property yields is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Reconciliation

Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property in question. Note: While this amount is probably the best indication of what a house would sell for in an open market, it probably will not be the price at which the property closes. 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 used as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to put the property on the market again. It all comes down to this: An appraiser from Steven Norris will help you get the most accurate property value, so you can make wise real estate decisions.