Understanding Appraisals

A home purchase is the most important investment some people will ever make. It doesn't matter if a primary residence, a second vacation property or one of many rentals, the purchase of real property is a detailed financial transaction that requires multiple people working in concert to make it all happen.

Practically all the people involved are quite familiar. The most recognizable person in the transaction is the real estate agent. Next, the mortgage company provides the money required to bankroll the exchange. The title company ensures that all requirements of the transaction are completed and that the title is clear to pass 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, what party is responsible for making sure the property is worth the amount being paid? 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 Laura Conte will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at Laura Conte is to inspect the property to ascertain its true status. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the condition a reasonable buyer would expect them to be. To ensure the stated square footage is accurate and document the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the house.

Following the inspection, an appraiser uses 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

Here, we use information on local building costs, the cost of labor and other factors to ascertain how much it would cost to build a property comparable to the one being appraised. This value often sets the upper limit on what a property would sell for. It's also the least used method.

Analyzing Comparable Sales

Appraisers become very familiar with the subdivisions in which they work. They thoroughly understand the value of certain 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 subject in question. By assigning a dollar value to 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 are more accurately in line with the features of subject property.

  • If, for example, the comparable property has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace from the sales price of the comparable home.
  • 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 could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Laura Conte, we are experts when it comes to knowing the worth of real estate features in Salinas and Monterey County neighborhoods. The sales comparison approach to value is most often awarded the most weight when an appraisal is for a home purchase.

Valuation Using the Income Approach

A third method of valuing a house is sometimes used when an area has a measurable number of renter occupied properties. In this case, the amount of revenue the real estate generates is factored in with income produced by neighboring properties to give an indicator of the current value.

Arriving at a Value Conclusion

Examining the data from all approaches, the appraiser is then ready to document an estimated market value for the property at hand. Note: While this amount is probably the strongest indication of what a house is worth, it probably will 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'. 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 is actually worth. At the end of the day, an appraiser from Laura Conte will guarantee you attain the most accurate property value, so you can make profitable real estate decisions.