Making Sense of the Appraisal Process

A home purchase is the most important transaction many could ever encounter. Whether it's where you raise your family, a second vacation property or an investment, purchasing real property is an involved financial transaction that requires multiple people working in concert to see it through.

The majority of the people participating are very familiar. The most familiar entity in the exchange is the real estate agent. Then, the mortgage company provides the financial capital necessary to bankroll the transaction. And ensuring all aspects of the sale are completed and that the title is clear to transfer 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, who makes sure the value of the property is in line with the purchase price? This is where you meet the appraiser. We provide an unbiased opinion 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 Fariss Appraisal Services will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To ascertain the true status of the property, it's our responsibility to first perform a thorough inspection. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the shape a typical buyer would expect them to be. To ensure the stated square footage is accurate and document the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious features - or defects - that would affect the value of the property.

Following the inspection, an appraiser uses 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

Here, we use information on local building costs, the cost of labor and other factors to determine 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.

Sales Comparison

Appraisers can tell you a lot about the neighborhoods in which they work. They innately understand the value of certain 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 being appraised. Using knowledge of the value of certain items such as upgraded appliances, extra 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 property.

  • If, for example, the comparable property has a fireplace and the subject doesn't, the appraiser may subtract the value of a fireplace from the sales price of the comparable.
  • But, 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.

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. When it comes to valuing features of homes in Bakersfield and Kern, Fariss Appraisal Services is second to none. This approach to value is most often awarded the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing a property is sometimes applied when an area has a measurable number of renter occupied properties. In this scenario, the amount of revenue the property produces is factored in with income produced by comparable properties to derive the current value.

Reconciliation

Examining the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. Note: While the appraised value is probably the most accurate indication of what a house is worth, it may not be the price at which the property closes. Depending on the individual circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. Here's what it all boils down to, an appraiser from Fariss Appraisal Services will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.