Real Estate Appraisals: A Primer

Their home's purchase is the most important investment most of us may ever make. Whether it's a main residence, a second vacation home or one of many rentals, the purchase of real property is an involved transaction that requires multiple people working in concert to pull it all off.

Practically all the people involved are very familiar. The real estate agent is the most familiar entity in the transaction. Then, the mortgage company provides the financial capital necessary to bankroll the exchange. The title company ensures that all aspects of the exchange are completed and that a clear title transfers 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 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 licensed, certified, professional appraiser from West Valley Appraisal Services will ensure, you as an interested party, are informed.

Appraisals start with the property inspection

Our first responsibility at West Valley Appraisal Services is to inspect the property to ascertain its true status. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there and are in the condition a reasonable buyer would expect them to be. To make sure the stated size of the property has not been misrepresented and document the layout of the home, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the property.

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

Replacement Cost

This is where the appraiser pulls information on local construction costs, the cost of labor and other elements to determine how much it would cost to construct a property nearly identical to the one being appraised. This figure often sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Paired Sales Analysis

Appraisers can tell you a lot about the neighborhoods in which they work. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the real estate at hand. 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.

  • Say, for example, 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.
  • However, 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.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to knowing the true value of features of homes in Glendale and Maricopa, West Valley Appraisal Services can't be beat. This approach to value is commonly given the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing a house is sometimes employed when an area has a reasonable number of rental properties. In this situation, the amount of revenue the real estate produces is factored in with income produced by neighboring properties to derive the current value.

The Bottom Line

Analyzing the data from all approaches, the appraiser is then ready to state an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not always the final sales price even though it is likely the best indication of what a property is worth. Depending on the specific circumstances 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 West Valley Appraisal Services will guarantee you attain the most fair and balanced property value, so you can make profitable real estate decisions.