Home Appraisals: A Primer

A home purchase is the largest financial decision most will ever encounter. It doesn't matter if where you raise your family, a second vacation property or a rental fixer upper, the purchase of real property is a detailed financial transaction that requires multiple people working in concert to make it all happen.

You're likely to be familiar with the parties taking part in the transaction. The most familiar entity in the exchange is the real estate agent. Next, the lender provides the money required to fund the transaction. And the title company makes sure that all requirements of the sale are completed and that the title is clear to transfer from the seller to the purchaser.

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So, what party makes sure the value of the real estate is in line with the purchase price? 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 Alex Pavlovsky will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

To determine an accurate status of the property, it's our responsibility to first perform a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the shape a typical person would expect them to be. To make sure the stated square footage has not been misrepresented and convey the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the property.

Once the site has been inspected, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, the appraiser gathers information on local construction costs, the cost of labor and other elements to determine how much it would cost to build a property similar to the one being appraised. This estimate often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers become very familiar with the subdivisions in which they work. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the property being appraised. By assigning a dollar value to certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • Say, for example, the comparable property has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system 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.

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 Burlingame and San Mateo, Alex Pavlovsky can't be beat. The sales comparison approach to value is commonly awarded the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use a third method of valuing real estate. In this situation, the amount of revenue the real estate produces is taken into consideration along with income produced by comparable properties to determine the current value.

The Bottom Line

Analyzing the data from all applicable approaches, the appraiser is then ready to document an estimated market value for the property in question. Note: While this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But 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. At the end of the day, an appraiser from Alex Pavlovsky will guarantee you get the most accurate property value, so you can make profitable real estate decisions.