Decoding the Appraisal Process

A home purchase is the biggest financial decision many people will ever consider. Whether it's where you raise your family, a second vacation home or an investment, the purchase of real property is a complex transaction that requires multiple people working in concert to make it all happen.


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

Most of the people participating are very familiar. The real estate agent is the most recognizable person in the transaction. Next, the lender provides the money required to bankroll the deal. Ensuring all details of the sale are completed and that a clear title passes to the buyer from the seller is the title company.

So what party makes sure the property is consistent with the purchase price? In comes the appraiser. 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 professional Colorado licensed appraiser from Realtech Properties will ensure you as an interested party are informed.

Inspecting the subject property

To determine the true status of the property, it's our duty to first conduct a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they indeed are present and are in the shape a typical buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage is proper and conveying the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.

Back at the office, we use two or three approaches when determining the value of the property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, the appraiser pulls information on local building costs, the cost of labor and other factors to calculate how much it would cost to replace the property being appraised. This figure usually sets the maximum on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers can tell you a lot about the communities in which they appraise. We innately understand the value of certain features to the people of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the subject at hand. Using knowledge of the value of certain items such as upgraded appliances, extra bathrooms, an additional living area, quality of construction, lot size, we add or subtract from each comparable's sales price so that they more accurately match the features of subject property.

Say, for example, the comparable property has an extra half bath that the subject doesn't, the appraiser may subtract the value of that half bath from the sales price of the comparable home.
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.

A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. The sales comparison approach to value is usually given the most importance when an appraisal is for a home sale.

Valuation Using the Income Approach

A third way of valuing a house is sometimes used when a neighborhood has a measurable number of renter occupied properties. In this situation, the amount of revenue the property yields is factored in with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. It is important to note that while the appraised value is probably the strongest indication of what a house would sell for in an open market, it probably will not be the price at which the property closes. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust the final price up or down. 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 would likely sell for in an open marketplace. Here's what it all boils down to: An appraiser from Realtech Properties will guarantee you discover the most accurate property value, so you can make profitable real estate decisions.