An Overview of the Appraisal Process
Getting real estate is the biggest financial decision some people may ever encounter. It doesn't matter if a primary residence, a seasonal vacation home or an investment, purchasing real property is a detailed financial transaction that requires multiple parties to make it all happen.
The majority of the participants are very familiar. The real estate agent is the most recognizable person in the exchange. Next, the lender provides the money required to fund the transaction. And the title company makes sure that all requirements of the exchange are completed and that the title is clear to pass from the seller to the purchaser.
So, who makes sure the value of the property is in line with the purchase price? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer could 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 Slater Real Estate Services will ensure, you as an interested party, are informed.
Appraisals start with the home inspection
To ascertain an accurate status of the property, it's our duty to first conduct a thorough inspection. We must see features first hand, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really exist and are in the shape a reasonable buyer would expect them to be. To make sure the stated square footage has not been misrepresented and describe the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the property.
Following the inspection, an appraiser uses two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.
Here, we gather information on local construction costs, the cost of labor and other elements to figure out how much it would cost to construct a property similar to the one being appraised. This value usually sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.
Paired Sales Analysis
Appraisers are intimately familiar with the subdivisions in which they work. They thoroughly understand the value of specific features to the residents of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the home at hand. 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 adjust the comparable properties so that they more accurately portray the features of subject property.
After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Slater Real Estate Services, we are an authority when it comes to knowing the worth of particular items in Windsor and Weld County neighborhoods. The sales comparison approach to value is usually given the most consideration when an appraisal is for a home purchase.
Valuation Using the Income Approach
A third method of valuing a property is sometimes employed when an area has a measurable number of renter occupied properties. In this case, the amount of income the real estate produces is factored in with income produced by comparable properties to give an indicator of the current value.
The Bottom Line
Analyzing the data from all approaches, the appraiser is then ready to state an estimated market value for the property in question. The estimate of value at the bottom of the appraisal report is not necessarily what's being paid for the property even though it is likely the best indication of what a property is worth. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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 sell the property again. Here's what it all boils down to, an appraiser from Slater Real Estate Services will guarantee you discover the most accurate property value, so you can make wise real estate decisions.