What are the components of an appraisal?

One's home purchase is the most serious investment most people could ever make. Whether it's a main residence, an additional vacation home or a rental fixer upper, the purchase of real property is a detailed transaction that requires multiple people working in concert to see it through.


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Most people are familiar with the parties taking part in the transaction. The most known entity in the transaction is the real estate agent. Next, the mortgage company provides the money necessary to fund the transaction. Ensuring all aspects of the transaction are completed and that a clear title transfers to the buyer from the seller is the title company.

So what party makes sure the value of the property is consistent with the amount being paid? 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 parcel of real estate, where both buyer and seller are informed parties. A professional Colorado licensed appraiser from W. Earl Wilson will ensure you as an interested party are informed.

Inspecting the subject property

To ascertain the true status of the property, it's our responsibility to first perform a thorough inspection. We must see features hands on, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really are there and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the floor plan, ensuring the square footage is accurate and illustrating the layout of the property. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the property.

Following the inspection, an appraiser employs two or three approaches when 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, the appraiser uses information on local construction costs, labor rates and other elements to figure out how much it would cost to replace the property being appraised. This figure usually sets the upper limit on what a property would sell for. The cost approach is also the least used predictor of value.

Analyzing Comparable Sales

Appraisers get to know the communities in which they work. We innately understand the value of certain features to the homeowners of that area. Then, the appraiser looks up recent sales in the area and finds properties which are 'comparable' to the subject being appraised. Using knowledge of the value of certain items such as remodeled rooms, types of flooring, energy efficient items, patios and porches, or extra storage space, we adjust the comparable properties so that they more accurately match the features of subject property.

For example, if the comparable property 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.
If the subject has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

When it comes to putting a value on features of homes in Centennial and Arapahoe, W. Earl Wilson can't be beat. This approach to value is usually given the most consideration when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing approach to value is sometimes applied when an area has a measurable number of rental properties. In this case, the amount of revenue the property generates 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 put down an estimated market value for the subject property. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's market value 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'. But the appraised value is often employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to put the property on the market again. Here's what it all boils down to: An appraiser from W. Earl Wilson will help you attain the most accurate property value, so you can make the most informed real estate decisions.