Decoding the Appraisal Process

Getting a house can be the largest financial decision many people could ever encounter. It doesn't matter if where you raise your family, an additional vacation home or an investment, 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 taking part in the transaction. The most familiar person in the exchange is the real estate agent. Next, the bank provides the financial capital necessary to finance the exchange. And ensuring all requirements of the exchange are completed and that the title is clear to transfer to the buyer from the seller is the title company.

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So, what party makes sure the real estate is worth 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 parcel of real estate, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Zenith Appraisal Services will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at Zenith Appraisal Services is to inspect the property to ascertain its true status. We must see features hands on, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they indeed are there and are in the shape a reasonable buyer would expect them to be. To ensure the stated size of the property has not been misrepresented and describe the layout of the house, the inspection often requires creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious amenities - or defects - that would affect the value of the property.

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

Cost Approach

Here, the appraiser analyzes information on local construction costs, the cost of labor and other factors to derive how much it would cost to construct a property similar 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.

Analyzing Comparable Sales

Appraisers are intimately familiar with the communities in which they appraise. They thoroughly understand the value of particular features to the residents of that area. Then, the appraiser researches recent transactions in the area and finds properties which are 'comparable' to the home at hand. Using knowledge of the value of certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject property.

  • If, for example, the comparable property has a storm shelter and the subject does not, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
  • If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add an amount to the comparable property.

An opinion of what the subject might sell for can only be determined once all differences between the comps and the subject have been evaluated. At Zenith Appraisal Services, we are an authority in knowing the worth of particular items in Aurora and Arapahoe County neighborhoods. This approach to value is typically awarded the most importance when an appraisal is for a home exchange.

Valuation Using the Income Approach

A third way of valuing approach to value is sometimes applied when an area has a reasonable number of rental properties. In this scenario, the amount of income the property produces is factored in with income produced by similar properties to give an indicator of the current value.

Reconciliation

Combining information from all approaches, the appraiser is then ready to put down an estimated market value for the property in question. Note: While this amount is probably the best indication of what a property is worth, it probably will not be the final sales price. Depending on the individual situations 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 used 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. The bottom line is, an appraiser from Zenith Appraisal Services will guarantee you attain the most fair and balanced property value, so you can make wise real estate decisions.