Understanding Appraisals

Getting real estate is the biggest investment many people will ever consider. It doesn't matter if where you raise your family, a second vacation home or one of many rentals, purchasing real property is an involved financial transaction that requires multiple people working in concert to pull it all off.

You're probably familiar with the parties having a role in the transaction. The most known person in the transaction is the real estate agent. Then, the mortgage company provides the financial capital required to fund the deal. And ensuring all aspects of the sale are completed and that the title is clear to transfer to the buyer from the seller is the title company.

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

So, what party makes sure the value of the property is in line with the purchase price? In comes the appraiser. 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 Springs Appraisals Inc will ensure, you as an interested party, are informed.

Appraisals begin with the inspection

Our first responsibility at Springs Appraisals Inc is to inspect the property to ascertain its true status. We must physically view features, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they truly exist and are in the shape a reasonable person would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is accurate and conveying the layout of the property. Most importantly, we look for any obvious amenities - or defects - that would have an impact on the value of the property.

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.

Replacement Cost

Here, we gather 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 value often sets the maximum on what a property would sell for. The cost approach is also the least used method.

Analyzing Comparable Sales

Appraisers get to know the subdivisions in which they appraise. They innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent transactions in close proximity to the subject and finds properties which are 'comparable' to the subject in question. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, additional bathrooms or bedrooms, or quality of construction, we add or subtract from each comparable's sales price so that they are more accurately in line with the features of subject.

  • If, for example, the comparable has an irrigation system and the subject does not, the appraiser may deduct the value of an irrigation system from the sales price of the comparable home.
  • However, if the subject has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount 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. At Springs Appraisals Inc, we are experts when it comes to knowing the value of real estate features in Colorado Springs and El Paso County neighborhoods. This approach to value is commonly awarded 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 an area has a reasonable number of rental properties. In this situation, the amount of revenue the real estate generates is factored in with income produced by similar properties to derive the current value.

Arriving at a Value Conclusion

Examining the data from all approaches, the appraiser is then ready to document 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. Prices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. But 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. At the end of the day, an appraiser from Springs Appraisals Inc will help you attain the most accurate property value, so you can make profitable real estate decisions.