Real Estate Appraisals: A Primer
A home purchase is the most important financial decision some of us may ever consider. It doesn't matter if where you raise your family, an additional vacation home or one of many rentals, the purchase of real property is a detailed transaction that requires multiple parties to pull it all off.
Most of the parties involved are very familiar. The most known entity in the transaction is the real estate agent. Next, the lender provides the money required to finance the exchange. And the title company makes sure that all requirements of the sale are completed and that the title is clear to transfer to the buyer from the seller.
So, what party makes sure the value of the real estate is in line with the amount being paid? In comes the appraiser. We provide an unbiased opinion 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 Piscitelli Appraisal Service will ensure, you as an interested party, are informed.
Appraisals start with the property inspection
To ascertain the true status of the property, it's our responsibility to first complete a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are present and are in the shape a reasonable person would expect them to be. To ensure the stated size of the property has not been misrepresented and describe the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.
Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.
This is where we use information on local building costs, labor rates and other elements to derive how much it would cost to replace the property being appraised. This estimate usually sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.
Appraisers become very familiar with the subdivisions in which they appraise. They innately understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the real estate at hand. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject property.
In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Piscitelli Appraisal Service, we are experts in knowing the value of particular items in Oak Park and Ventura County neighborhoods. This approach to value is usually awarded the most consideration when an appraisal is for a home exchange.
Valuation Using the Income Approach
In the case of income producing properties - rental houses for example - the appraiser may use an additional approach to value. In this case, the amount of revenue the property generates is taken into consideration along with other rents in the area for comparable properties to derive the current value.
Arriving at a Value Conclusion
Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of what a property is worth. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is often used 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 Piscitelli Appraisal Service will guarantee you get the most accurate property value, so you can make profitable real estate decisions.