Making Sense of the Appraisal Process

Acquiring a home can be the most serious financial decision many may ever make. Whether it's a main residence, a seasonal vacation home or a rental fixer upper, the purchase of real property is a complex financial transaction that requires multiple parties to pull it all off.

It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most recognizable entity in the exchange. Next, the bank provides the financial capital needed to fund the deal. And ensuring all details of the exchange 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, what party is responsible for making sure the value of the real estate is consistent with the amount being paid? This is where you meet 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 Good Appraisal Services, Inc. will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at Good Appraisal Services, Inc. is to inspect the property to ascertain its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are present and are in the shape a typical buyer would expect them to be. To make sure the stated square footage is accurate and illustrate the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, we identify any obvious features - 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: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

Here, we gather information on local construction costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This estimate commonly sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Sales Comparison

Appraisers are intimately familiar with the communities in which they appraise. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser looks up recent transactions in the neighborhood and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • For example, if the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace 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.

A true estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to knowing the true value of features of homes in Riverside and Riverside, Good Appraisal Services, Inc. is your local authority. The sales comparison approach to value is commonly given the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing a house is sometimes used when a neighborhood has a reasonable number of renter occupied properties. In this scenario, the amount of income the real estate produces is factored in with other rents in the area for comparable properties to give an indicator of the current value.

Coming Up With The Final Value

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. Note: While this amount is probably the best indication of what a house is worth, it probably will not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. Regardless, the appraised value is typically employed 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 Good Appraisal Services, Inc. will help you get the most accurate property value, so you can make wise real estate decisions.