What Are the Components of an Appraisal?

Purchasing a home is the largest transaction many could ever encounter. Whether it's where you raise your family, a second vacation home or a rental fixer upper, the purchase of real property is a complex transaction that requires multiple parties to make it all happen.

Practically all the participants are very familiar. The real estate agent is the most familiar person in the exchange. Then, the bank provides the money needed to bankroll the transaction. And ensuring all details of the exchange are completed and that a clear title passes from the seller to the purchaser is the title company.

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So, who makes sure the real estate is worth the amount being paid? 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 licensed, certified, professional appraiser from Mark A. Ballard & Associates will ensure, you as an interested party, are informed.

Appraisals start with the property inspection

Our first responsibility at Mark A. Ballard & Associates is to inspect the property to determine its true status. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they indeed are there and are in the shape a typical person would expect them to be. To make sure the stated square footage is accurate and describe the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious features - or defects - that would have an impact on the value of the property.

Next, after the inspection, an appraiser uses 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

This is where we pull information on local building costs, labor rates and other factors to derive how much it would cost to replace the property being appraised. This estimate usually sets the maximum on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers can tell you a lot about the subdivisions in which they work. They innately 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. By assigning a dollar value to 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 more accurately match the features of subject property.

  • For example, if the comparable 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 a certain amount to the comparable property.

A valid estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Mark A. Ballard & Associates, we are an authority when it comes to knowing the worth of particular items in Woodland Park and Teller County neighborhoods. The sales comparison approach to value is usually given the most weight when an appraisal is for a home exchange.

Valuation Using the Income Approach

In the case of income producing properties - rental houses for example - the appraiser may use a third way of valuing real estate. In this situation, the amount of revenue the property yields is factored in with income produced by similar properties to give an indicator of the current value.

Coming Up With The Final Value

Combining information from all applicable approaches, the appraiser is then ready to state an estimated market value for the property at hand. It is important to note that while the appraised value is probably the most accurate indication of what a house is worth, it probably will not be the price at which the property closes. Depending on the specific 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.But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. At the end of the day, an appraiser from Mark A. Ballard & Associates will help you discover the most fair and balanced property value, so you can make the most informed real estate decisions.