Comprehending Appraisals

A home purchase is the most significant investment some could ever consider. Whether it's where you raise your family, a seasonal vacation property or one of many rentals, purchasing real property is a complex financial transaction that requires multiple people working in concert to see it through.

You're probably familiar with the parties taking part in the transaction. The most known person in the exchange is the real estate agent. Next, the bank provides the money needed to bankroll the exchange. And the title company makes sure that all aspects of the transaction are completed and that the title is clear to pass from the seller to the buyer.

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 property is in line with the purchase price? This is where the appraiser comes in. We provide an unbiased opinion of what a buyer could 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 MGK Properties will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

Our first task at MGK Properties is to inspect the property to ascertain its true status. We must physically see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are present and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the house.

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

Cost Approach

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

Paired Sales Analysis

Appraisers are intimately familiar with the subdivisions in which they work. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), 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 has a storm shelter and the subject doesn't, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
  • 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.

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. At MGK Properties, we are experts in knowing the value of particular items in Hemet and Riverside County neighborhoods. The sales comparison approach to value is typically awarded the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes used when a neighborhood has a reasonable number of rental properties. In this situation, the amount of income the real estate produces is taken into consideration along with income produced by neighboring properties to derive the current value.

Putting It All Together

Analyzing the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. It is important to note that while this amount is probably the most accurate indication of what a property is worth, it probably will not be the price at which the property closes. Prices can always 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 they could recover in case they had to sell the property again. At the end of the day, an appraiser from MGK Properties will guarantee you attain the most fair and balanced property value, so you can make the most informed real estate decisions.