Understanding Appraisals

Acquiring a house can be the largest transaction most might ever consider. Whether it's a primary residence, a second vacation home or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple people working in concert to pull it all off.

Most of the participants are very familiar. The real estate agent is the most recognizable entity in the transaction. Then, the mortgage company provides the money necessary to bankroll the transaction. And ensuring all aspects of the sale are completed and that the title is clear to pass from the seller to the buyer 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, what party makes sure the value of the real estate is consistent with the amount being paid? In comes the appraiser. We provide an unbiased estimate 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 ABS Appraisals Services will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first duty at ABS Appraisals Services is to inspect the property to determine its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are there and are in the shape a typical person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is accurate and illustrating the layout of the property. 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 real property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

This is where the appraiser pulls information on local building costs, labor rates and other elements to calculate how much it would cost to construct a property comparable to the one being appraised. This estimate usually 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 neighborhoods in which they work. They innately understand the value of certain features to the people of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional 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 property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At ABS Appraisals Services, we are experts when it comes to knowing the value of particular items in San Diego and San Diego County neighborhoods. This approach to value is typically given the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

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

Putting It All Together

Examining the data from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. 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. 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 ABS Appraisals Services will help you get the most fair and balanced property value, so you can make the most informed real estate decisions.