What Goes Into an Appraisal?

Getting real estate is the most serious investment some people will ever consider. It doesn't matter if where you raise your family, a second vacation property or one of many rentals, the purchase of real property is a detailed transaction that requires multiple people working in concert to make it all happen.

It's likely you are familiar with the parties taking part in the transaction. The most known face in the exchange is the real estate agent. Then, the lender provides the money needed to finance the deal. The title company makes sure that all aspects of the transaction are completed and that the title is clear to transfer to the buyer from the seller.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, who's responsible for making sure the property is worth the purchase price? This is where the appraiser comes in. 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 Colorado Mountain Products & Services will ensure, you as an interested party, are informed.

Inspecting the subject property

Our first task at Colorado Mountain Products & Services is to inspect the property to determine its true status. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed exist and are in the condition a reasonable buyer would expect them to be. To ensure the stated square footage is accurate and describe the layout of the home, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the property.

After the inspection, an appraiser uses two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Here, the appraiser pulls information on local construction costs, labor rates and other elements to calculate 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 predictor of value.

Paired Sales Analysis

Appraisers are intimately familiar with the communities in which they work. They innately understand the value of particular features to the people of that area. Then, the appraiser researches recent sales 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, extra bathrooms, additional living area, quality of construction, lot size, 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 subtract the value of a storm shelter from the sales price of the comparable home.
  • But, 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.

Once all necessary adjustments have been made, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Colorado Mountain Products & Services, we are an authority when it comes to knowing the worth of particular items in Conifer and Jefferson County neighborhoods. The sales comparison approach to value is commonly given the most weight when an appraisal is for a real estate sale.

Valuation Using the Income Approach

A third method of valuing a property is sometimes used when a neighborhood has a reasonable number of rental properties. In this situation, the amount of income the real estate produces is taken into consideration along with income produced by neighboring properties to determine the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. The estimate of value on the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valueThere 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 often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. It all comes down to this, an appraiser from Colorado Mountain Products & Services will guarantee you get the most accurate property value, so you can make wise real estate decisions.