An Overview of the Appraisal Process

Acquiring real estate is the largest transaction some people will ever encounter. It doesn't matter if a main residence, a second vacation property or a rental fixer upper, purchasing real property is a complex financial transaction that requires multiple people working in concert to pull it all off.

Practically all the parties participating are very familiar. The most recognizable face in the exchange is the real estate agent. Then, the bank provides the financial capital needed to bankroll the exchange. And ensuring all requirements of the exchange are completed and that a clear title passes to the buyer from the seller is the title company.

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So, who makes sure the real estate 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Appraise Colorado Inc will ensure, you as an interested party, are informed.

Appraisals begin with the property inspection

To determine the true status of the property, it's our duty to first perform a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are present and are in the condition a reasonable person would expect them to be. To ensure the stated size of the property has not been misrepresented and document the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, we look for any obvious amenities - or defects - that would affect the value of the house.

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

Cost Approach

This is where the appraiser analyzes information on local building costs, labor rates and other elements to derive 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 method.

Sales Comparison

Appraisers get to know the neighborhoods in which they appraise. They innately understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the home in question. Using knowledge of the value of certain items such as square footage, additional 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.

  • Say, for example, the comparable 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.
  • If the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

A valid estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to associating a value with features of homes in Parker and Douglas, Appraise Colorado Inc is your local authority. This approach to value is commonly awarded the most importance when an appraisal is for a real estate sale.

Valuation Using the Income Approach

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

Reconciliation

Analyzing the data from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. It is important to note that while this amount is probably the most accurate indication of what a house is worth, it may not be the price at which the property closes. Depending on the specific situations of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.Regardless, the appraised value is typically used as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to put the property on the market again. It all comes down to this, an appraiser from Appraise Colorado Inc will help you discover the most fair and balanced property value, so you can make the most informed real estate decisions.