Making Sense of the Appraisal Process

Buying a house is the largest transaction many will ever encounter. Whether it's where you raise your family, an additional vacation property or an investment, the purchase of real property is a complex transaction that requires multiple people working in concert to see it through.

It's likely you are familiar with the parties having a role in the transaction. The most recognizable entity in the transaction is the real estate agent. Then, the bank provides the financial capital required to bankroll the transaction. The title company sees to it that all aspects of the transaction are completed and that a clear title transfers to the buyer from the seller.

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 real estate is worth the purchase price? In comes the appraiser. We provide an unbiased opinion of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Paragon Valuations will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

Our first duty at Paragon Valuations is to inspect the property to determine its true status. 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 truly are present 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 identifies any obvious features - or defects - that would have an impact on the value of the property.

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.

Cost Approach

Here, the appraiser uses information on local building costs, labor rates and other elements to figure out how much it would cost to replace the property being appraised. This estimate usually sets the maximum on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers can tell you a lot about the communities in which they appraise. They thoroughly understand the value of particular features to the people of that area. Then, the appraiser looks up recent sales in close proximity to the subject and finds properties which are 'comparable' to the real estate in question. Using knowledge of the value of 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.

  • If, for example, the comparable has an extra half bath that the subject does not, the appraiser may subtract the value of that half bath 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.

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 Rancho Cucamonga and San Bernardino, Paragon Valuations is your local authority. This approach to value is usually awarded the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third method of valuing real estate is sometimes applied when an area has a reasonable number of rental properties. In this scenario, the amount of income the property generates is factored in with income produced by similar properties to derive the current value.

Putting It All Together

Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. Note: While this amount is probably the most accurate indication of what a house is worth, it may not be the price at which the property closes. 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'. But the appraised value is typically employed 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 Paragon Valuations will help you attain the most accurate property value, so you can make the most informed real estate decisions.