Decoding the Appraisal Process

A home purchase can be the largest investment some of us will ever consider. Whether it's where you raise your family, a seasonal vacation property or a rental fixer upper, the purchase of real property is an involved financial transaction that requires multiple parties to pull it all off.

Practically all the participants are quite familiar. The most recognizable face in the exchange is the real estate agent. Then, the mortgage company provides the financial capital necessary to bankroll the transaction. 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 real estate is in line with the purchase price? In comes 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 licensed, certified, professional appraiser from Gillispie Appraisal Services will ensure, you as an interested party, are informed.

Appraisals start with the home inspection

To ascertain an accurate status of the property, it's our duty to first conduct a thorough inspection. We must actually see features, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really exist and are in the shape a reasonable buyer would expect them to be. To make sure the stated size of the property has not been misrepresented and document the layout of the property, the inspection often includes creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the house.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, the appraiser gathers information on local construction costs, labor rates and other elements to derive how much it would cost to replace the property being appraised. This value often sets the maximum on what a property would sell for. It's also the least used predictor of value.

Analyzing Comparable Sales

Appraisers are intimately familiar with the subdivisions in which they work. They thoroughly understand the value of particular features to the homeowners of that area. Then, the appraiser researches recent sales 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 upgraded appliances, extra bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately portray the features of subject.

For example, if the comparable property has an irrigation system and the subject doesn't, the appraiser may deduct the value of an irrigation system from the sales price of the comparable.
However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

In the end, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Gillispie Appraisal Services, we are an authority when it comes to knowing the worth of particular items in Pueblo and Pueblo County neighborhoods. This approach to value is commonly awarded the most consideration when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use an additional way of valuing a house. In this scenario, the amount of revenue the property yields is taken into consideration along with income produced by neighboring properties to give an indicator of the current value.

Reconciliation

Combining information from all applicable approaches, the appraiser is then ready to state 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 probably will not be the price at which the property closes. There 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 typically 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 put the property on the market again. It all comes down to this, an appraiser from Gillispie Appraisal Services will guarantee you get the most accurate property value, so you can make wise real estate decisions.