Home Appraisals in Los Angeles
The home appraisal process in Los Angeles is a critical step in any real estate transaction. A home appraisal determines the fair market value of a property, ensuring that buyers, sellers, and lenders have an accurate understanding of what a home is worth. Appraisals are required in most home sales and refinancing efforts and are conducted by certified professionals known as appraisers. In Los Angeles, real estate markets can be highly competitive, and factors such as location, property condition, and recent sales data in the area can significantly affect the outcome of an appraisal.
According to the National Association of Realtors (NAR), home appraisals provide a detailed report assessing the home’s condition, the local real estate market, and the appraiser’s professional judgment of the property’s value. In Los Angeles, where property values can fluctuate depending on location, knowing how much your home is worth is crucial.
- Home Appraisals in Los Angeles
- What Is a Real Estate Appraisal in Los Angeles?
- How Much Does a Home Appraisal Cost in Los Angeles?
- What Affects a Home Appraisal in Los Angeles?
- How Do You Prepare for a Home Appraisal in Los Angeles?
- What Hurts a Home Appraisal in Los Angeles?
- How to Get a House Appraised in Los Angeles?
- How Does a Mortgage Appraisal Work in Los Angeles?
- Who Pays for the Appraisal in a Real Estate Transaction?
- What Surprising Factors Can Impact a Home Appraisal in Los Angeles?
- What Happens After a Home Appraisal in Los Angeles?
- How Does an Appraiser Determine Home Value in Los Angeles?
- How Long Does a Home Appraisal Take in Los Angeles?
- Can You Dispute a Low Appraisal in Los Angeles?
- What Happens If the Appraisal Value Exceeds the Sales Price?
What Is a Real Estate Appraisal in Los Angeles?
A real estate appraisal in Los Angeles is an expert estimate of a property’s value performed by a licensed appraiser. Appraisals are based on an in-depth inspection of the property and an analysis of recent sales of comparable homes, commonly referred to as comps. Appraisals are required by mortgage lenders to ensure that the loan amount does not exceed the property’s value. The Appraisal Institute, a leading professional association of real estate appraisers, emphasizes the importance of appraisals in safeguarding both buyers and lenders.
In Los Angeles, where property values are heavily influenced by location, the appraiser will consider the neighborhood’s average sale price, proximity to amenities, and historical trends. Homes in neighborhoods like Bel Air or Santa Monica are likely to have significantly higher appraised values than those in less sought-after areas.
Value types
Value can be defined in a variety of ways by a real estate appraisal. Among the most prevalent are:
The price that an asset would fetch at a competitive Walrasian auction is known as its market value. Market value is frequently used interchangeably with fair value or open market value. Market value is defined by the International Valuation Standards (IVS) as the estimated price at which an asset or liability should trade on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, following appropriate marketing and in which both parties have acted sensibly, knowingly, and freely.
Use value, also known as value-in-use, is the net present value (NPV) of the cash flow that an asset produces for a particular owner under a particular use. Value-in-use, which can be higher or lower than a property’s market value, is the value to a specific user.
Investment value is the worth to a specific investor; it might or might not be greater than a property’s market value. Buyers and sellers are motivated to enter the market by discrepancies between an asset’s market value and investment value. Investment value is defined by the International Valuation Standards (IVS) as the asset’s worth to the owner or potential owner for operational or individual investment purposes.
The value used for taxation purposes, as established by the mass appraisal process, is known as the ad valorem tax value. To ascertain the taxable value of real estate, the mass appraisal process applies the information gathered from multiple sources.
The value of real estate covered by an insurance policy is known as its insurable value. In general, the site value is not included.
Liquidation value is a frequently sought-after criterion of value in bankruptcy proceedings and can be interpreted as either an orderly or forced liquidation. It makes the assumption that a seller is forced to sell after a shorter exposure period than the typical market period.
Value versus price
There may be discrepancies between the price paid to purchase the property and its market value. The market value of that property may not be reflected in the price paid. There may occasionally have been unique factors at play, such as a unique relationship between the buyer and the seller in which one party significantly influenced or controlled the other. In other situations, the deal might have been one of many properties that two parties exchanged or sold. In these situations, the price paid for a specific piece is its market “price” rather than its market “value” (the general notion is that the prices and pieces add up to the market value of all the parts).
In other cases, if a buyer’s subjective assessment of the property—its investment value to him—was higher than the market value, he might be willing to pay a premium price above the generally acknowledged market value. An owner of a nearby property could benefit from economies of scale and added value (plottage value) by combining his property with the subject property (assemblage). In corporate finance, similar circumstances can occasionally arise. This can happen, for instance, when a merger or acquisition takes place at a price higher than the value that the underlying stock price represents. Since complete ownership of a business entails complete control over it, the common justification for these kinds of mergers and acquisitions is that “the sum is greater than its parts.” Customers are occasionally willing to pay a premium for this. Buying real estate can also result in this circumstance.
However, the most frequent cause of value and price discrepancies is when a buyer or seller agrees to a contract at a price that is either too high or too low despite not knowing the property’s market value. For one of the two parties, this is regrettable. A real estate appraiser’s responsibility is to determine a property’s actual market value, not just its asking price.
Fractional assessment is the practice of frequently valuing properties below their market values. Properties that are evaluated at 10% or less of their stated market values may be the consequence of fractional assessment.
Definitions of market value in the US
Appraisals in the US are for a specific kind of value (e.g., investment value, foreclosure value, fair market value, and distressed sale value). Market value is the definition of value that is most frequently used. Although it doesn’t define it, the Uniform Standards of Professional Appraisal Practice (USPAP) offers broad guidelines for defining market value:
An opinion-based value that assumes the transfer of property (i.e., a right of ownership or a group of such rights) as of a specific date, subject to the conditions specified in the appraiser’s definition of the term that applies in the appraisal.
Therefore, a set of assumptions regarding the market in which the subject property may transact constitutes the definition of value used in an appraisal or Current Market Analysis (CMA) analysis and report. It influences the selection of similar data for the analysis. It may also have an impact on how the property is valued. Tree value, for instance, can account for as much as 27% of the value of a property.
Information on Los Angeles
The most populated city in the U.S. state of California is Los Angeles, which is frequently abbreviated as L.A. It is the commercial, financial, and cultural hub of Southern California and is the second most populous city in the United States, after New York City, with an estimated 3,820,914 people living inside its limits as of 2023. The main city of a 12.8 million-person metropolitan area, Los Angeles is home to a diverse population in terms of ethnicity and culture (2023). With more than 18.3 million inhabitants, Greater Los Angeles is a vast metropolis that encompasses the Los Angeles and Riverside–San Bernardino metropolitan areas.
With the San Gabriel Valley to the east and the Santa Monica Mountains and the San Fernando Valley to the north, the city proper is mostly located in a basin in Southern California that is adjacent to the Pacific Ocean on the west. It is the county seat of Los Angeles County, the most populated county in the US with an estimated 9.86 million residents as of 2022, and it occupies roughly 469 square miles (1,210 km2). As of 2023, it had over 2.7 million visitors, making it the third most visited city in the United States.
The native Tongva people lived in the region that would become Los Angeles until Juan Rodríguez Cabrillo claimed it for Spain in 1542. Felipe de Neve, a Spanish governor, established the city on the village of Yaanga on September 4, 1781. After the Mexican War of Independence, it joined the First Mexican Empire in 1821. Los Angeles and the remainder of California were acquired as part of the Treaty of Guadalupe Hidalgo in 1848, following the conclusion of the Mexican–American War, and were incorporated into the United States. Five months before California became a state, on April 4, 1850, Los Angeles was incorporated as a municipality. The city grew quickly after oil was discovered in the 1890s. The Los Angeles Aqueduct, which transports water from Eastern California, was completed in 1913, adding to the city’s growth.
The economy of Los Angeles is diverse, encompassing a wide range of industries. Los Angeles is still one of the biggest centers of American film production and the largest in the world by revenue, despite a sharp decline in film and television production since the COVID-19 pandemic. The city is significant in the history of cinema. It also boasts one of the Americas’ busiest ports for containers. With a gross metropolitan product of more than $1.0 trillion in 2018, the Los Angeles metropolitan area ranked third globally in terms of GDP, behind New York and Tokyo. Los Angeles will host the Summer Olympics in 2028 after hosting them in 1932 and 1984. Even though downtown Los Angeles has seen a decline in business since the COVID-19 pandemic, the city’s urban core is developing into a cultural hub that features the largest display of Frank Gehry architecture in the world.
How Much Does a Home Appraisal Cost in Los Angeles?
The cost of a home appraisal in Los Angeles typically ranges between $300 and $600 for a single-family home, but it can be higher depending on the property’s complexity. According to The Appraisal Foundation, the fee structure for appraisals can vary based on property size, type, and the time required to complete the appraisal.
For larger properties, such as luxury homes or multi-family units, appraisal costs can be substantially higher, often exceeding $1,000. Additional fees may apply for homes located in remote areas or those with unique architectural features.
What Affects a Home Appraisal in Los Angeles?
Several key factors influence a home appraisal in Los Angeles:
- Location: Neighborhoods with high demand, like Hollywood Hills, Brentwood, or Beverly Hills, tend to have higher property values.
- Property Size and Condition: Larger homes with modern amenities, well-maintained landscaping, and updated interiors generally receive higher appraisals.
- Market Trends: Real estate trends in Los Angeles fluctuate. During periods of high demand, appraised values may increase.
According to CoreLogic, a data analytics company that specializes in real estate, Los Angeles homes in high-demand neighborhoods have appreciated at higher rates than other parts of the city, largely due to the desirability of the location.
How Do You Prepare for a Home Appraisal in Los Angeles?
Preparing for a home appraisal can increase the likelihood of receiving an accurate valuation. Homeowners should ensure that the property is in its best condition by addressing any needed repairs and presenting a clean, well-organized home. Additionally, providing the appraiser with a list of recent upgrades or renovations can help them factor these improvements into the appraisal report.
To ensure a smooth process, make sure the appraiser has easy access to the entire property, including the attic, basement, and garage, if applicable.
What Hurts a Home Appraisal in Los Angeles?
Several factors can negatively impact a home appraisal:
- Deferred Maintenance: Homes with visible signs of neglect, such as peeling paint, broken windows, or faulty plumbing, will likely receive a lower appraisal.
- Overly Customized Features: While personalized touches may appeal to some buyers, extreme customization can lower the home’s appeal in the broader market.
According to HouseLogic, a resource provided by the National Association of Realtors, homes with unfinished projects or major defects are at risk of receiving appraisals that are below the homeowner’s expectations.
How to Get a House Appraised in Los Angeles?
To have a home appraised, homeowners or their real estate agents can contact a certified appraiser or appraisal management company. The appraiser will schedule a visit, during which they will assess the home’s condition, size, and any unique features. Most appraisals are completed within a week, though this timeframe can extend during periods of high demand.
How Does a Mortgage Appraisal Work in Los Angeles?
A mortgage appraisal is required by lenders to ensure that the property being financed meets the value necessary for the loan. The appraisal protects lenders from lending more than the home is worth.
In Los Angeles, where home prices can be volatile, lenders rely on appraisals to mitigate financial risk. Freddie Mac and Fannie Mae, two of the largest mortgage financing entities in the U.S., require that all financed homes be appraised to determine if the sale price reflects its true market value.
Who Pays for the Appraisal in a Real Estate Transaction?
In a typical real estate transaction, the buyer usually pays for the appraisal as part of the closing costs. However, this can vary depending on the terms negotiated between buyer and seller. The appraisal fee is non-refundable, even if the transaction does not close.
What Surprising Factors Can Impact a Home Appraisal in Los Angeles?
In Los Angeles, several surprising factors can impact home appraisals:
- Zoning Laws: Changes to local zoning regulations can either increase or decrease a property’s value, depending on the types of development allowed.
- Energy Efficiency: Homes with LEED certification or equipped with solar panels may receive higher appraisals due to their reduced environmental impact and cost savings over time.
What Happens After a Home Appraisal in Los Angeles?
After a home appraisal, the appraiser will compile their findings into a report, which is typically delivered within a few days to a week. If the appraisal comes in lower than expected, buyers and sellers may need to renegotiate the sales price or the buyer may need to bring additional funds to close the transaction. If the appraisal meets or exceeds the sales price, the transaction can proceed as planned.
If the appraisal report comes in lower than the sales price, it can create a significant challenge in the real estate transaction. The buyer’s mortgage lender will only finance the home based on the appraised value, not the agreed-upon price. In Los Angeles, this is a common issue due to the rapid fluctuation of home prices, particularly in high-demand neighborhoods like Venice or Silver Lake. As a result, the buyer might need to cover the difference out of pocket, or both parties might have to renegotiate the price. In some cases, buyers may also request a second appraisal if they believe the first one was inaccurate or incomplete.
How Does an Appraiser Determine Home Value in Los Angeles?
An appraiser determines the value of a home in Los Angeles by conducting an extensive analysis that involves both physical inspection and a review of the local real estate market. This process is rooted in several essential factors:
- Sales Comparison Approach (SCA): The appraiser reviews the sale prices of recently sold homes that are similar in size, condition, location, and features. These comparables (comps) are typically properties sold within the past six months and located within a close radius of the subject property. In neighborhoods like Westwood or Studio City, where home styles and lot sizes vary widely, finding the most appropriate comparables is essential for an accurate valuation.
- Cost Approach: This method involves estimating the cost of replacing the property with a similar one, accounting for depreciation and the value of the land. In markets like Los Angeles, where the cost of construction can be significant, this approach is particularly relevant for new builds or homes with unique architectural features.
- Income Approach: In some cases, particularly with long term investment properties, the appraiser may also consider the income-generating potential of the property. For instance, a duplex in Los Angeles with a high rental yield will have its value influenced by its expected income stream, which is factored into the appraisal.
Each of these methods helps the appraiser arrive at an objective assessment of the property’s market value. The Appraisal Institute states that the sales comparison approach is most commonly used for residential appraisals in competitive markets like Los Angeles.
How Long Does a Home Appraisal Take in Los Angeles?
A typical home appraisal in Los Angeles takes around one to two weeks to complete from the time the appraiser visits the property. However, the timeline can vary depending on market conditions, the complexity of the property, and the appraiser’s schedule. During periods of high real estate activity, such as the spring and summer months, it may take longer to schedule an appraisal. In addition, unique or high-value properties in neighborhoods like Malibu or Hollywood Hills might require more time due to their distinct features and lack of direct comparables.
The appraisal itself usually takes a few hours, during which the appraiser will conduct a thorough inspection of the property, noting any structural issues, upgrades, and improvements. Following the site visit, the appraiser analyzes recent market data and prepares the final report.
Can You Dispute a Low Appraisal in Los Angeles?
Yes, it is possible to dispute a low appraisal in Los Angeles, although it is not guaranteed to change the final valuation. To dispute an appraisal, you will need to present evidence that the appraiser overlooked key factors, such as recent upgrades, renovations, or relevant comparables that were not considered in the initial report. Real estate agents often assist with this process by providing additional comparables or documentation that can support a higher valuation.
Steps to dispute an appraisal include:
- Requesting a Reconsideration of Value: This is a formal process in which you or your real estate agent submit a request for the appraiser to review additional information, such as other sales data or recent improvements to the home.
- Hiring a Second Appraiser: In some cases, especially if the first appraisal seems significantly off, you may choose to hire a second appraiser for a second opinion. Be aware, however, that most mortgage lenders will require the first appraisal as the official value unless there are clear errors.
According to The National Association of Realtors, it’s important to approach disputes with solid evidence, as appraisers are required to adhere to strict guidelines set by The Uniform Standards of Professional Appraisal Practice (USPAP).
What Happens If the Appraisal Value Exceeds the Sales Price?
If the appraisal comes in higher than the sales price, this is favorable for the buyer, as it means they are purchasing the home for less than its appraised market value. In this scenario, the mortgage lender will proceed with financing based on the agreed-upon sales price, and the buyer gains immediate equity in the property. In competitive markets like Los Angeles, where bidding wars are common, it’s relatively rare for appraisals to exceed the sales price, but it can happen, particularly if the seller is motivated to sell quickly or if market conditions shift unexpectedly.
Real estate experts recommend that buyers in this situation use the extra equity strategically, either by negotiating seller concessions or securing favorable financing terms with their lender. In Los Angeles, where home prices are consistently rising, having additional equity can provide a buffer against future market volatility.
For more information about Home Appraisals in Los Angeles please contact Big Town Real Estate today
Richard Evanns has experienced in both the acquisitions, operations, and law surrounding short term rentals, mid-term rentals, and long term rental properties in Los Angeles and surrounding markets, from Joshua Tree to Yosemite.
