Comprehending Appraisals

A home purchase can be the most important transaction most may ever consider. Whether it's where you raise your family, a second vacation home or one of many rentals, purchasing real property is an involved financial transaction that requires multiple people working in concert to see it through.

Most people are familiar with the parties having a role in the transaction. The real estate agent is the most familiar face in the transaction. Then, the bank provides the financial capital needed to bankroll the transaction. And the title company ensures that all areas 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, what party is responsible for making sure the real estate 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 Gary Zidell will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

To ascertain an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must physically see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly exist and are in the condition a typical person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the property.

After the inspection, an appraiser uses two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

This is where the appraiser gathers information on local construction costs, labor rates and other factors to ascertain how much it would cost to replace the property being appraised. This figure commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers become very familiar with the subdivisions in which they work. They innately understand the value of particular features to the people of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the real estate being appraised. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, 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 has a storm shelter and the subject does not, the appraiser may subtract the value of a storm shelter 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. At Gary Zidell, we are experts in knowing the worth of particular items in Granada Hills and Los Angeles County neighborhoods. This approach to value is typically given the most weight when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes used when an area has a measurable number of rental properties. In this scenario, the amount of revenue the real estate yields is factored in with income produced by neighboring properties to determine the current value.

Putting It All Together

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the property in question. Note: While this amount is probably the most accurate indication of what a property is worth, it probably will not be the price at which the property closes. Depending on the specific situations of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.Regardless, 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 Gary Zidell will guarantee you get the most accurate property value, so you can make profitable real estate decisions.