Comprehending Appraisals

Getting real estate is the largest investment some may ever consider. It doesn't matter if where you raise your family, an additional vacation property or a rental fixer upper, purchasing real property is an involved transaction that requires multiple people working in concert to pull it all off.

Practically all the parties participating are quite familiar. The most known face in the transaction is the real estate agent. Then, the bank provides the financial capital required to fund the exchange. And ensuring all requirements of the transaction are completed and that a clear title transfers from the seller to the purchaser is the title company.

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So, what party is responsible for making sure the real estate is worth the amount being paid? In comes the appraiser. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Matthew O'Conner will ensure, you as an interested party, are informed.

Appraisals start with the property inspection

To ascertain an accurate status of the property, it's our duty to first conduct a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.

After the inspection, an appraiser uses two or three approaches to determining the value of the property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

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

Paired Sales Analysis

Appraisers become very familiar with the subdivisions in which they work. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser researches recent sales in the neighborhood and finds properties which are 'comparable' to the home at hand. By assigning a dollar value to 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.

For example, if the comparable property has an extra half bath that the subject doesn't, the appraiser may deduct the value of that half bath from the sales price of the comparable home.
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.

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 Matthew O'Conner, we are an authority when it comes to knowing the value of real estate features in Oakland and Alameda County neighborhoods. This approach to value is usually awarded the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes employed when an area has a reasonable number of rental properties. In this case, the amount of income the real estate produces is factored in with income produced by comparable properties to derive the current value.

Reconciliation

Analyzing the data from all approaches, the appraiser is then ready to document an estimated market value for the property in question. The estimate of value at the bottom of 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. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is often used 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 put the property on the market again. Here's what it all boils down to, an appraiser from Matthew O'Conner will help you discover the most fair and balanced property value, so you can make profitable real estate decisions.