What Goes Into an Appraisal?

Their home's purchase is the most important investment many might ever encounter. It doesn't matter if a primary residence, an additional vacation home or a rental fixer upper, the purchase of real property is a detailed financial transaction that requires multiple parties to make it all happen.

Most people are familiar with the parties taking part in the transaction. The most familiar person in the transaction is the real estate agent. Next, the mortgage company provides the financial capital necessary to finance the transaction. And ensuring all requirements of the transaction are completed and that a clear title passes to the buyer from the seller is the title company.

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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Jorge Castaneda will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain an accurate status of the property, it's our responsibility to first perform a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the shape a typical person would expect them to be. To ensure the stated size of the property is accurate and document the layout of the house, the inspection often includes creating a sketch of the floorplan. Most importantly, we identify any obvious amenities - or defects - that would have an impact on the value of the house.

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, we analyze information on local building costs, labor rates and other elements to derive how much it would cost to build a property comparable to the one being appraised. This estimate usually sets the upper limit on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers become very familiar with the communities in which they appraise. They innately understand the value of particular features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the home in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional 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.

  • For example, if the comparable has a storm shelter and the subject doesn't, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
  • 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 could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Jorge Castaneda, we are experts when it comes to knowing the worth of real estate features in Salinas and Monterey County neighborhoods. This approach to value is commonly given the most importance when an appraisal is for a home purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third approach to value. In this situation, the amount of revenue the property yields is taken into consideration along with income produced by nearby properties to determine the current value.

Reconciliation

Analyzing the data from all approaches, the appraiser is then ready to put down an estimated market value for the property in question. 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 seller motivation, urgency or 'bidding wars' that may adjust the final price 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 they could get back in case they had to sell the property again. The bottom line is, an appraiser from Jorge Castaneda will help you discover the most accurate property value, so you can make wise real estate decisions.