What is an appraisal?

Acquiring a house can be the most significant investment some might ever encounter. It doesn't matter if it's a primary residence, a seasonal vacation home or an investment, the purchase of real property is a complex financial transaction that requires multiple parties to make it all happen.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.


Most of the parties participating are very familiar. The real estate agent is the most recognizable entity in the transaction. Next, the mortgage company provides the financial capital required to finance the deal. The title company sees to it that all requirements of the exchange are completed and that a clear title transfers from the seller to the buyer.

So what party makes sure the property is consistent with the purchase price?   This is where you meet 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 professional California licensed appraiser from Gutierrez Appraisals will ensure you as an interested party are informed.

Appraisals begin with the inspection

To ascertain the true status of the property, it's our duty to first conduct a thorough inspection. We must actually 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 reasonable person would expect them to be. To make sure the stated size of the property has not been misrepresented and document the layout of the property, the inspection often entails creating a sketch of the floor plan. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the property.

Following the inspection, an appraiser employs two or three approaches when 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

This is where the appraiser gathers information on local building costs, labor rates and other elements to derive how much it would cost to build a property nearly identical to the one 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.

Analyzing Comparable Sales

Appraisers get to know the subdivisions in which they work. We thoroughly understand the value of specific features to the people of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property at hand. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we add or subtract from each comparable's sales price so that they more accurately portray the features of subject property.

  • If, for example, the comparable property has an irrigation system and the subject doesn't, the appraiser may subtract the value of an irrigation system from the sales price of the comparable home.
  • However, 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.
After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. The sales comparison approach to value is commonly given the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing a property is sometimes employed when an area has a measurable number of rental properties. In this situation, the amount of income the property produces is factored in with income produced by neighboring 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. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property could sell for in an open market. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace. At the end of the day: An appraiser from Gutierrez Appraisals will help you discover the most accurate property value, so you can make the most informed real estate decisions.