What Are the Components of an Appraisal?

A home purchase can be the most significant transaction many of us will ever consider. Whether it's where you raise your family, a second vacation home or one of many rentals, purchasing real property is an involved transaction that requires multiple people working in concert to see it through.

Practically all the participants are very familiar. The most recognizable person in the transaction is the real estate agent. Next, the mortgage company provides the financial capital needed to fund the deal. And ensuring all details of the transaction are completed and that a clear title passes to the buyer from the seller is the title company.

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So, who makes sure the real estate is worth the amount being paid? This is where you meet the appraiser. 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 Spachuk Realty & Appraisals Inc. will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first responsibility at Spachuk Realty & Appraisals Inc. is to inspect the property to ascertain its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the shape a reasonable person would expect them to be. To make sure the stated square footage has not been misrepresented and convey the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, we look for any obvious features - 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 the property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

Here, the appraiser gathers information on local building costs, the cost of labor and other factors to calculate how much it would cost to build a property nearly identical to the one being appraised. This estimate commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Sales Comparison

Appraisers are intimately familiar with the communities in which they appraise. They innately understand the value of specific features to the people of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the subject in question. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

  • If, for example, the comparable property has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable home.
  • However, if the subject property 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. When it comes to knowing the true worth of features of homes in West Hollywood and Los Angeles, Spachuk Realty & Appraisals Inc. is second to none. The sales comparison approach to value is typically awarded the most consideration 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 an additional method of valuing a property. In this situation, the amount of income the real estate yields is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Coming Up With The Final Value

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. Note: While this amount is probably the strongest indication of what a house is worth, it probably will not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. But 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. It all comes down to this, an appraiser from Spachuk Realty & Appraisals Inc. will guarantee you get the most fair and balanced property value, so you can make the most informed real estate decisions.