Real Property Appraisals: A Primer

A home purchase is the most significant financial decision some people might ever make. It doesn't matter if a main residence, a second vacation property or an investment, the purchase of real property is a detailed financial transaction that requires multiple parties to see it through.

The majority of the participants are very familiar. The real estate agent is the most recognizable entity in the exchange. Next, the lender provides the financial capital required to bankroll the exchange. The title company sees to it that all details of the sale are completed and that a clear title passes from the seller to the purchaser.

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

So, who's responsible for making sure the property is worth the purchase price? This is where you meet the appraiser. We provide an unbiased opinion of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Andersen Appraisal, LLC will ensure, you as an interested party, are informed.

Inspecting the subject property

To determine an accurate status of the property, it's our responsibility to first conduct a thorough inspection. We must actually see aspects of the property, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they truly are there 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 have an impact on the value of the house.

Once the site has been inspected, we use two or three approaches to determining the value of the property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

Here, the appraiser uses information on local building costs, the cost of labor and other factors to figure out how much it would cost to build a property similar to the one being appraised. This figure usually sets the maximum on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers get to know the neighborhoods in which they work. They innately 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 upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they are more accurately in line with the features of subject.

  • For example, if the comparable property has an irrigation system and the subject does not, the appraiser may subtract the value of an irrigation system 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.

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. When it comes to putting a value on features of homes in Pueblo West and Pueblo, Andersen Appraisal, LLC can't be beat. The sales comparison approach to value is commonly given the most consideration when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third method of valuing a house is sometimes employed when a neighborhood has a reasonable number of renter occupied properties. In this situation, the amount of income the real estate yields is taken into consideration along with other rents in the area for comparable properties to derive the current value.

Reconciliation

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. Note: While this amount is probably the most reliable indication of what a property is worth, it may 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 an offer or listing 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 they could recover in case they had to put the property on the market again. It all comes down to this, an appraiser from Andersen Appraisal, LLC will help you discover the most accurate property value, so you can make wise real estate decisions.