What Are the Parts of an Appraisal?

Their home's purchase can be the most important transaction most of us may ever encounter. It doesn't matter if where you raise your family, a seasonal vacation home or a rental fixer upper, purchasing real property is a detailed financial transaction that requires multiple parties to see it through.

Most of the people participating are very familiar. The most familiar face in the exchange is the real estate agent. Then, the lender provides the money needed to bankroll the transaction. And ensuring all requirements of the transaction are completed and that the title is clear to transfer from the seller to the buyer is the title company.

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So, what party is responsible for making sure the property is worth the amount being paid? In comes the appraiser. We provide an unbiased estimate 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 Colorado Appraisal Co will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

To ascertain the true status of the property, it's our responsibility to first perform a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are there and are in the condition 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, the appraiser identifies any obvious amenities - or defects - that would have an impact on the value of the property.

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

Cost Approach

This is where we use information on local construction costs, the cost of labor and other elements to derive how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers get to know the communities in which they appraise. They thoroughly understand the value of specific features to the residents of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the property at hand. 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 adjust the comparable properties so that they more accurately match the features of subject.

  • Say, for example, the comparable property has a storm shelter and the subject doesn't, the appraiser may deduct the value of a storm shelter from the sales price of the comparable.
  • 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.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to putting a value on features of homes in Centennial and Arapahoe, Colorado Appraisal Co is your local authority. The sales comparison approach to value is commonly awarded the most weight when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes employed when an area has a reasonable number of rental properties. In this case, the amount of income the real estate yields is taken into consideration along with other rents in the area for comparable properties to give an indicator of the current value.

Reconciliation

Analyzing the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of what a property is worth. Depending on the specific circumstances 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.But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than they could get back in the event they had to put the property on the market again. It all comes down to this, an appraiser from Colorado Appraisal Co will help you attain the most accurate property value, so you can make profitable real estate decisions.