Understanding the Appraisal Process
Purchasing a house is the largest transaction some people will ever make. It doesn't matter if a primary residence, a seasonal vacation property or an investment, purchasing real property is a detailed financial transaction that requires multiple people working in concert to see it through.
Most of the participants are very familiar. The most known person in the exchange is the real estate agent. Then, the mortgage company provides the money required to finance the deal. And ensuring all details of the exchange are completed and that the title is clear to pass to the buyer from the seller is the title company.
So, who's responsible for making sure the real estate is worth the amount being paid? 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 property, 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 begin with the property inspection
To determine an accurate status of the property, it's our responsibility to first perform a thorough inspection. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really exist and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and conveying the layout of the property. Most importantly, we look for any obvious features - or defects - that would affect the value of the house.
Once the site has been inspected, an appraiser uses two or three approaches to determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
This is where the appraiser uses information on local building costs, the cost of labor and other factors to calculate how much it would cost to construct a property comparable to the one being appraised. This figure commonly sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.
Appraisers get to know the communities in which they appraise. They thoroughly understand the value of certain 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 in question. Using knowledge of the value of certain items such as square footage, extra 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.
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. At Slater Real Estate Services, we are an authority when it comes to knowing the value of particular items in Windsor and Weld County neighborhoods. This approach to value is most often given the most importance when an appraisal is for a real estate purchase.
Valuation Using the Income Approach
A third method of valuing a house is sometimes employed when a neighborhood has a measurable number of renter occupied properties. In this situation, the amount of income the real estate generates is taken into consideration along with income produced by neighboring properties to determine the current value.
The Bottom Line
Examining the data from all applicable approaches, the appraiser is then ready to put down an estimated market value for the subject property. 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. It's not uncommon for prices to be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. Regardless, 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. Here's what it all boils down to, an appraiser from Slater Real Estate Services will help you get the most fair and balanced property value, so you can make profitable real estate decisions.