Understanding Appraisals

A home purchase is the biggest transaction many could ever consider. It doesn't matter if a main residence, a seasonal vacation property or an investment, purchasing real property is a detailed transaction that requires multiple people working in concert to make it all happen.

Practically all the parties participating are quite familiar. The most recognizable face in the transaction is the real estate agent. Then, the bank provides the money needed to bankroll the transaction. The title company makes sure that all details of the sale are completed and that the title is clear to pass from the seller to the purchaser.

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So, what party makes sure the value of the real estate is consistent with 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 Paul Csengeri will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

To determine an accurate status of the property, it's our duty to first perform a thorough inspection. We must actually view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and conveying 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.

Back at the office, an appraiser uses two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Cost Approach

This is where we pull information on local construction costs, the cost of labor and other factors to calculate how much it would cost to replace the property being appraised. This figure commonly sets the maximum on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers are intimately familiar with the neighborhoods in which they appraise. They innately understand the value of specific features to the residents of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the subject in question. 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 adjust the comparable properties so that they are more accurately in line with the features of subject.

  • For example, if the comparable has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
  • However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an 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 Paul Csengeri, we are an authority in knowing the worth of particular items in Torrance and Los Angeles County neighborhoods. The sales comparison approach to value is usually given the most weight when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing real estate is sometimes used when an area has a reasonable number of rental properties. In this situation, the amount of revenue the property produces is factored in with income produced by neighboring properties to derive the current value.

Coming Up With The Final Value

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. Note: While this amount is probably the most reliable indication of what a house is worth, it may not be the price at which the property closes. Depending on the individual situations of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could recover in case they had to put the property on the market again. It all comes down to this, an appraiser from Paul Csengeri will guarantee you get the most accurate property value, so you can make the most informed real estate decisions.