Understanding the Appraisal Process

Their home's purchase can be the most serious financial decision most of us could ever make. Whether it's a main residence, a seasonal vacation property or one of many rentals, purchasing real property is a complex financial transaction that requires multiple parties to see it through.

The majority of the parties participating are quite familiar. The most recognizable face in the transaction is the real estate agent. Next, the bank provides the money needed to fund the deal. And ensuring all requirements of the sale are completed and that a clear title transfers from the seller to the purchaser 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's responsible for making sure the value of the property is consistent with the purchase price? In comes the appraiser. We provide an unbiased opinion 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 Laughlin & Company, LLC will ensure, you as an interested party, are informed.

Appraisals start with the property inspection

To determine an accurate status of the property, it's our duty to first perform a thorough inspection. We must physically view aspects of the property, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really exist and are in the shape a typical buyer would expect them to be. To make sure the stated square footage is accurate and convey the layout of the house, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser identifies any obvious features - 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 real property: sales comparison and, in the case of a rental property, an income approach.

Replacement Cost

This is where we use information on local building costs, the cost of labor and other factors to figure out how much it would cost to construct a property comparable to the one being appraised. This value commonly sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Sales Comparison

Appraisers are intimately familiar with the neighborhoods in which they work. They thoroughly understand the value of certain features to the residents of that area. Then, the appraiser researches recent sales in close proximity to the subject and finds properties which are 'comparable' to the home being appraised. 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 more accurately match the features of subject.

  • If, for example, the comparable property has a storm shelter and the subject doesn't, the appraiser may subtract the value of a storm shelter from the sales price of the comparable home.
  • But, 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.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Laughlin & Company, LLC, we are experts when it comes to knowing the worth of real estate features in Castle Rock and Douglas County neighborhoods. The sales comparison approach to value is most often given the most importance 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 - we may use an additional approach to value. In this case, the amount of revenue the real estate produces is factored in with income produced by neighboring properties to derive the current value.

Arriving at a Value Conclusion

Combining information from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property in question. The estimate of value on the appraisal report is not necessarily the final sales price even though it is likely the best indication of a property's valuePrices can always be driven up or down by extenuating circumstances like the motivation or urgency of a seller or 'bidding wars'. 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 the event they had to sell the property again. The bottom line is, an appraiser from Laughlin & Company, LLC will help you discover the most fair and balanced property value, so you can make wise real estate decisions.