What Are the Components of an Appraisal?
A home purchase is the most important transaction many of us could ever make. Whether it's where you raise your family, an additional vacation home or a rental fixer upper, the purchase of real property is an involved financial transaction that requires multiple parties to see it through.
You're likely to be familiar with the parties having a role in the transaction. The most recognizable face in the transaction is the real estate agent. Next, the lender provides the money required to finance the transaction. The title company makes sure that all areas of the exchange are completed and that a clear title passes from the seller to the purchaser.
So, what party is responsible for making sure the value of the property is in line with the amount being paid? This is where the appraiser comes in. 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 GDB Appraisal Services, Inc 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 complete a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are present and are in the shape a reasonable buyer would expect them to be. The inspection often includes a sketch of the floorplan, ensuring the square footage is proper and illustrating the layout of the property. Most importantly, the appraiser identifies any obvious features - or defects - that would affect the value of the property.
Following the inspection, we use two or three approaches to determining the value of real property: sales comparison and, in the case of a rental property, an income approach.
Here, the appraiser pulls information on local building costs, the cost of labor and other elements to determine how much it would cost to construct a property comparable to the one being appraised. This value often sets the maximum on what a property would sell for. The cost approach is also the least used method.
Paired Sales Analysis
Appraisers can tell you a lot about the neighborhoods in which they appraise. They thoroughly understand the value of certain features to the homeowners of that area. Then, the appraiser researches recent transactions in the neighborhood and finds properties which are 'comparable' to the property at hand. By assigning a dollar value to 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 more accurately match the features of subject.
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 GDB Appraisal Services, Inc, we are an authority in knowing the value of real estate features in Colorado Springs and El Paso County neighborhoods. The sales comparison approach to value is most often awarded the most consideration when an appraisal is for a real estate sale.
Valuation Using the Income Approach
A third way of valuing approach to value is sometimes applied when a neighborhood has a measurable number of renter occupied properties. In this scenario, the amount of income the property produces is factored in with income produced by nearby properties to determine the current value.
Coming Up With The Final Value
Combining information from all applicable approaches, the appraiser is then ready to document an estimated market value for the subject property. The estimate of value at the bottom of the appraisal report is not always what's being paid for the property even though it is likely the best indication of a property's valueThere are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust the final price up or down. Regardless, the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than they could recover in the event they had to sell the property again. It all comes down to this, an appraiser from GDB Appraisal Services, Inc will help you get the most fair and balanced property value, so you can make wise real estate decisions.