Understanding Appraisals

A home purchase can be the most serious financial decision most of us could ever consider. Whether it's where you raise your family, a second vacation home or one of many rentals, purchasing real property is a complex financial transaction that requires multiple people working in concert to make it all happen.

Most people are familiar with the parties taking part in the transaction. The most familiar face in the exchange is the real estate agent. Then, the lender provides the money necessary to fund the deal. And ensuring all areas of the transaction are completed and that the title is clear to pass 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, who makes sure the value of the property is in line with the amount being paid? In comes the appraiser. 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 1 Valuations LLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal starts

Our first responsibility at 1 Valuations LLC is to inspect the property to determine its true status. We must see aspects of the property first hand, such as the number of bedrooms and bathrooms, the location, amenities, etc., to ensure they really exist and are in the condition a reasonable person would expect them to be. The inspection often includes a sketch of the house, ensuring the square footage is correct and illustrating the layout of the property. Most importantly, we look for any obvious features - or defects - that would have an impact on the value of the house.

Back at the office, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Replacement Cost

Here, we pull information on local construction costs, labor rates and other factors to ascertain how much it would cost to replace the property being appraised. This estimate usually sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers are intimately familiar with the communities in which they appraise. They innately understand the value of particular features to the people of that area. Then, the appraiser researches recent transactions in close proximity to the subject and finds properties which are 'comparable' to the real estate in question. 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 portray the features of subject property.

  • For example, if the comparable has an extra half bath that the subject doesn't, 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.

An opinion of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. When it comes to valuing features of homes in Monument and El Paso, 1 Valuations LLC can't be beat. This approach to value is commonly given the most consideration when an appraisal is for a home purchase.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - we may use an additional approach to value. In this situation, the amount of revenue the property generates is taken into consideration along with income produced by similar properties to derive the current value.

Putting It All Together

Combining information from all approaches, the appraiser is then ready to put down 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 what a property is worth. There are always mitigating factors such as seller motivation, urgency or 'bidding wars' that may adjust an offer or listing 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 put the property on the market again. The bottom line is, an appraiser from 1 Valuations LLC will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.