What Are the Parts of an Appraisal?

Their home's purchase can be the biggest transaction some of us may ever make. Whether it's a main residence, an additional vacation home or one of many rentals, the purchase of real property is an involved financial transaction that requires multiple people working in concert to make it all happen.

The majority of the participants are quite familiar. The most familiar face in the exchange is the real estate agent. Then, the bank provides the financial capital necessary to fund the transaction. And the title company sees to it that all requirements of the transaction are completed and that a clear title passes from the seller to the buyer.

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

So, who's responsible for making sure the property is worth the purchase price? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer might 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 Barefoot Appraisal Services will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first responsibility at Barefoot Appraisal Services is to inspect the property to determine its true status. We must actually see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are present and are in the condition a reasonable buyer 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, the appraiser identifies any obvious features - or defects - that would affect the value of the house.

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

Replacement Cost

This is where the appraiser analyzes information on local construction costs, the cost of labor and other factors to ascertain how much it would cost to replace the property being appraised. This value commonly sets the maximum on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers are intimately familiar with the neighborhoods in which they work. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser looks up recent sales in the area 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.

For example, if the comparable has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount 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. At Barefoot Appraisal Services, we are experts in knowing the value of real estate features in BREA and Orange County neighborhoods. This approach to value is typically given the most weight when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing a house is sometimes employed when an area has a reasonable number of renter occupied properties. In this case, the amount of income the real estate generates is taken into consideration along with income produced by comparable properties to give an indicator of the current value.

Coming Up With The Final Value

Examining the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property is worth. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. But the appraised value is typically employed 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 sell the property again. The bottom line is, an appraiser from Barefoot Appraisal Services will help you attain the most fair and balanced property value, so you can make wise real estate decisions.