A home purchase
can be
the most significant
financial decision
many of us
may
ever
make.
Whether it's
a primary residence,
a second vacation property or
one of many rentals, purchasing real property is
a complex transaction that requires multiple parties to make it all happen.
To learn more about appraising, click here to see a short video or call us today to talk about your specific property.
The majority of the people involved are very familiar.
The most familiar entity in the exchange is the real estate agent.
Then, the lender provides the financial capital required to fund the transaction.
The title company makes sure that all areas of the sale are completed and that the title is clear to pass from the seller to the purchaser.
So what party makes sure the real estate is consistent with the purchase price?
This is where you meet the appraiser. We provide an unbiased estimate of what a buyer could 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 Deer Creek Appraisals will ensure you as an interested party are informed.
The inspection is where an appraisal starts
Our first duty at Deer Creek Appraisals is to inspect the property to determine its true status.
We must actually see features, such as the number of bedrooms and bathrooms, the location, living areas, etc., to ensure they truly exist and are in the condition a typical buyer would expect them to be.
To make sure the stated size of the property has not been misrepresented and illustrate the layout of the home, the inspection often includes creating a sketch of the floor plan.
Most importantly, we identify any obvious features - or defects - that would affect the value of the property.
Following the inspection, we use two or three approaches when determining the value of real property:
sales comparison and, in the case of a rental property, an income approach.
Replacement Cost
Here, the appraiser uses information on local construction costs, labor rates and other factors to calculate how much it would cost to replace the property being appraised. This estimate often sets the maximum on what a property would sell for. It's also the least used predictor of value.
Analyzing Comparable Sales
Appraisers can tell you a lot about the communities in which they work.
We thoroughly understand the value of specific features to the people 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 at hand. 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.
For example, if the comparable property has a fireplace and the subject doesn't, the appraiser may deduct the value of a fireplace 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.
A valid estimate of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated.
This approach to value is typically awarded the most weight when an appraisal is for a home purchase.
Valuation Using the Income Approach
A third method of valuing real estate is sometimes applied when a neighborhood has a measurable number of rental properties.
In this scenario, the amount of income the property generates is factored in with other rents in the area for comparable properties to give an indicator of the current value.
The Bottom Line
Combining information from all approaches, the appraiser is then ready to state 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 a property's market value
Depending on the individual 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.
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.
Here's what it all boils down to: An appraiser from Deer Creek Appraisals will help you discover the most accurate property value, so you can make wise real estate decisions.
