What Goes Into an Appraisal?

Getting a home can be the most significant investment most could ever consider. It doesn't matter if a primary residence, a second vacation home or an investment, the purchase of real property is a complex financial transaction that requires multiple people working in concert to make it all happen.

The majority of the participants are very familiar. The real estate agent is the most recognizable person in the exchange. Then, the lender provides the money necessary to fund the exchange. And ensuring all requirements of the transaction are completed and that the title is clear to transfer to the buyer from the seller is the title company.

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So, what party is 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 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 Westside Appraisal Group will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To determine an accurate status of the property, it's our duty to first complete a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed exist and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and conveying the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.

Once the site has been inspected, we use two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, the appraiser pulls information on local construction costs, the cost of labor and other factors to derive how much it would cost to replace the property being appraised. This value usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers get to know the subdivisions in which they work. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the property at hand. By assigning a dollar value to 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 more accurately match the features of subject property.

Say, for example, the comparable has a fireplace and the subject doesn't, the appraiser may subtract 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.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Westside Appraisal Group, we are experts when it comes to knowing the value of particular items in Lakewood and Los Angeles County neighborhoods. The sales comparison approach to value is typically awarded the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes applied when a neighborhood has a measurable number of renter occupied properties. In this case, the amount of revenue the property generates is factored in with income produced by nearby properties to determine the current value.

Arriving at a Value Conclusion

Analyzing the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. The estimate of value on the appraisal report is not always the final sales price even though it is likely the best indication of a property's valueThere are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But the appraised value is typically 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. At the end of the day, an appraiser from Westside Appraisal Group will guarantee you discover the most accurate property value, so you can make the most informed real estate decisions.