What Are the Components of an Appraisal?

Buying real estate can be the most important investment most people might ever make. It doesn't matter if where you raise your family, a seasonal vacation property or one of many rentals, purchasing real property is a detailed transaction that requires multiple parties to make it all happen.

Practically all the people participating are very familiar. The most recognizable person in the transaction is the real estate agent. Then, the lender provides the money required to fund the transaction. And the title company ensures that all details of the exchange are completed and that the title is clear to transfer from the seller to the purchaser.

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So, what party is responsible for making sure the real estate is worth the purchase price? In comes the appraiser. 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 Academy Appraisals, Ltd. will ensure, you as an interested party, are informed.

Inspecting the subject property

To ascertain an accurate status of the property, it's our duty to first perform 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 indeed are there and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, we identify any obvious features - or defects - that would affect the value of the property.

Once the site has been inspected, we use 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.

Replacement Cost

This is where the appraiser gathers information on local building costs, the cost of labor and other elements to ascertain how much it would cost to construct a property comparable to the one being appraised. This estimate usually sets the upper limit on what a property would sell for. The cost approach is also the least used method.

Paired Sales Analysis

Appraisers are intimately familiar with the communities in which they work. They thoroughly understand the value of specific features to the homeowners of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or additional storage space, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • Say, for example, the comparable has an extra half bath that the subject does not, the appraiser may deduct the value of that half bath from the sales price of the comparable home.
  • However, 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.

In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. When it comes to knowing the true value of features of homes in Colorado Springs and El Paso, Academy Appraisals, Ltd. is your local authority. This approach to value is usually given the most weight when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional method of valuing real estate. In this scenario, the amount of income the real estate generates is factored in with income produced by neighboring properties to derive the current value.

Coming Up With The Final Value

Combining information from all applicable approaches, the appraiser is then ready to put down an estimated market value for the property at hand. 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. 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 typically employed 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 Academy Appraisals, Ltd. will guarantee you get the most fair and balanced property value, so you can make wise real estate decisions.