How Appraisers Figure Your Property’s Value

Adapted from an article from: The Orange County Register - Tuesday, October 26, 2004

Q. How do appraisers determine the value of a Property?

A. The most commonly used and relied upon approach to valuing residential properties in Southern California is known as the "sales comparison approach."

In the sales comparison approach, the appraiser finds recent sales, pending sales and active listings of comparable properties ("comps") similar to the property being appraised within its neighborhood. Ideally the comps are similar in location, lot size, home square footage, age, view and other significant amenities, and are recent (within 90 days).

At least three closed sales are required (as comps to complete an appraisal). Pending sales and active listings are often included as they represent the most recent market activity, which can indicate appreciating or depreciating prices.

Information on the comps is found through various data sources such as the MLS; from parties involved in those transactions such as the Realtors, Tax and Title roles, as well as at least an exterior visual inspection by the appraiser.

When the property (being appraised) is found to be superior (in value) to a comp, a positive dollar adjustment is made to the comp's sales or listing price.

A negative adjustment is made when the (property being appraised) is found to be inferior to a comparable property.

For example, if the property (being appraised) has a view and a comparable property does not - and similar properties with views generally sell for $100,000 more than non-view comps - a $100,000 adjustment is made to that comp.

Positive adjustments are made for attributes such as larger lots, views, cul-de-sac locations, proximity to water (ocean, lakes, marinas, etc.), located on golf course, recent re-modeling (especially kitchens and bathrooms), pools, home theaters, privacy, in prestigious neighborhood, etc.

Negative adjustments are made for attributes such as noisy locations, deferred maintenance, unsightly views, shared driveways, on busy street, neighborhood in decline, general market values in decline, etc.

But it is important to note that the market value of property amenities is not uniform from one neighborhood to the next.

For example, in one neighborhood a good quality pool/spa may add over $50,000 to a property's value. In another neighborhood, it adds little to no value. Typical homebuyers in some neighborhoods, where perhaps the lots and houses are larger, demand swimming pools. That is not (necessarily) the case in another neighborhood.

Certain property amenities may not add to a property's value despite costing the homeowner a significant investment.

It does not matter how much money was invested in a home. What matters is what a typical buyer would be willing to pay for it. Unusual or atypical amenities may recapture only a small percentage of their cost or even subtract from the value if they are highly unusual (likely not wanted by most buyers).

A property is not necessarily worth a price just because a buyer is willing to pay that price. Otherwise, appraisers would not be needed.

If a buyer is contracted to purchase a condominium for $400,000 and a like unit is on the market for $395,000, all things being equal, the former property is overpriced.

Because each appraisal study is unique, it may require a different method and more work than described in this article.

Editor’s Note: There may be a large difference between an appraiser’s value, market value, and the “ultimate” value of a property. At any point in time for any set of circumstances a willing and motivated seller may choose to sell a property at a certain price while a willing and motivated buyer may choose to pay that certain price for that property. This ultimate price could be well above or well below an appraised value or market value for that property. Remember also that this mutually agreed to “ultimate price” now becomes one of the new comps for the neighborhood. This is precisely how prices appreciate or depreciate over time as market conditions and neighborhood conditions change.

If you need a referral for a professional appraiser please contact a member of the Chivers Coastal Properties Group. We have the names of several licensed appraisers who have years of experience appraising Huntington Beach Properties.