Breaking Down the Appraisals

Getting a home is the most significant financial decision some will ever consider. It doesn't matter if it's where you raise your family, an additional vacation property or one of many rentals, the purchase of real property is a complex transaction that requires multiple people working in concert to see it through.


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Practically all the parties participating are very familiar. The real estate agent is the most familiar face in the transaction. Next, the mortgage company provides the financial capital required to fund the exchange. Ensuring all areas of the transaction are completed and that the title is clear to pass from the seller to the buyer is the title company.

So who makes sure the real estate is consistent with the amount being paid? This is where you meet the appraiser. We provide an unbiased estimate of what a buyer might expect to pay - or a seller receive - for a parcel of real estate, where both buyer and seller are informed parties. A professional California licensed appraiser from The Property Shop will ensure you as an interested party are informed.

Appraisals begin with the inspection

To ascertain an accurate status of the property, it's our responsibility to first perform a thorough inspection. We must physically see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., 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, we identify any obvious features - or defects - that would affect the value of the property.

After the inspection, an appraiser employs two or three approaches when determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

Here, we pull information on local construction costs, the cost of labor and other elements to calculate how much it would cost to construct a property comparable to the one being appraised. This figure commonly sets the maximum on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers get to know the neighborhoods in which they work. We thoroughly understand the value of particular features to the people of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate being appraised. Using knowledge of the value of certain items such as upgraded appliances, additional bathrooms, an additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject.

For example, if the comparable property has a storm shelter and the subject does not, the appraiser may deduct the value of a storm shelter from the sales price of the comparable home.
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.

At The Property Shop, we are an authority when it comes to knowing the value of real estate features in Torrance and Los Angeles County neighborhoods. This approach to value is usually given the most consideration when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third method of valuing a property. In this situation, the amount of income the property yields is taken into consideration along with income produced by similar properties to determine the current value.

The Bottom Line

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the subject property. Note: While the appraised value is probably the strongest indication of what a house would sell for in an open market, it may not be the final sales price. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing price up or down. But the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than the property would likely sell for in an open marketplace. The bottom line is: An appraiser from The Property Shop will guarantee you discover the most accurate property value, so you can make the most informed real estate decisions.