What Are the Components of an Appraisal?
Buying a home can be the most important transaction many might ever make. Whether it's a primary residence, a seasonal vacation home or one of many rentals, purchasing real property is a complex financial transaction that requires multiple parties to pull it all off.
It's likely you are familiar with the parties having a role in the transaction. The real estate agent is the most recognizable entity in the transaction. Then, the mortgage company provides the financial capital required to bankroll the exchange. And ensuring all areas of the sale are completed and that a clear title passes from the seller to the purchaser is the title company.
So, who makes sure the property is worth the purchase price? This is where the appraiser comes in. We provide an unbiased estimate 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 Crockett Appraisal Service, Inc. will ensure, you as an interested party, are informed.
The inspection is where an appraisal starts
To ascertain an accurate status of the property, it's our responsibility to first complete a thorough inspection. We must physically see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they truly are there 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 accurate and conveying the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would affect the value of the house.
Following the inspection, we use two or three approaches to determining the value of real property: a paired sales analysis, a replacement cost calculation, and an income approach when rental properties are prevalent.
Here, we analyze information on local construction costs, labor rates and other elements to ascertain how much it would cost to replace the property being appraised. This value often sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.
Appraisers can tell you a lot about the subdivisions in which they appraise. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser researches recent sales in the vicinity and finds properties which are 'comparable' to the property 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 property.
A true 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 Crockett Appraisal Service, Inc., we are an authority in knowing the worth of real estate features in Colorado Springs and El Paso County neighborhoods. This approach to value is typically given the most consideration 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 a third way of valuing a house. In this case, the amount of revenue the real estate produces is factored in with other rents in the area for comparable properties to derive the current value.
Arriving at a Value Conclusion
Examining the data from all approaches, the appraiser is then ready to state an estimated market value for the property at hand. Note: While this amount is probably the most accurate indication of what a property is worth, it probably will not be the price at which the property closes. Depending on the specific circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.But 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. At the end of the day, an appraiser from Crockett Appraisal Service, Inc. will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.