There are many reasons to obtain an appraisal, the most common reason being real estate, estate dissolution, and mortgage transactions. Other reasons for ordering an appraisal could be to obtain a personal loan, lower your county tax burden, establish the replacement cost for insurance purposes, settle an estate or establish an estate’s basis, it can also provide a negotiating tool when purchasing or selling real estate, protect your rights if a government agency such as the IRS requires it, or you are involved in a lawsuit.
Real Estate decisions are one of the most significant financial decisions in most people’s lives. Why would you weather this important life changing decision without the input of an unbiased professional? Anytime the value of your home or other real property is being questioned, an appraisal helps. If you’re selling or buying a home, an appraisal helps you set the most appropriate sales target and it helps to ensure that you don’t overpay. Appraisals ensure that property is divided fairly during an estate settlement or divorce. The largest financial asset that most people own is Real Estate.
An appraisal is a professional appraiser’s reconciled opinion of value. This opinion is arrived at through a formal process that one or all three common approaches to value. The first is the Cost Approach, which is basically what it would cost to replace the improvements, less physical deterioration, other factors, plus land value. The Sales Comparison Approach is second, and it involves comparing other similar nearby properties which have recently sold and those that are currently listed. The third approach is the Income Approach. It is of most importance when appraising income producing since it involves estimating what an investor would pay based on the total income produced by the property.
An appraisal report contains all of the relevant property characteristics, including location, physical attributes, legal description, economic trends, real property interest, and any items that are ancillary to the real property such as personal property, easements, restrictions, encumbrances, leases, covenants, special assessments, contracts, declarations, fractional interest, physical segment, and partial holding. The appraisal report will also contain a detailed scope of work and flood mapping to determine any FEMA flood zones on or near the real property.
When an appraiser finalizes and communicates his or her appraisal, each appraisal must ensure that the analysis utilized in the appraisal was appropriate and that the appraisal services were not rendered in a careless or negligent manner. The report must be credible and supportable as of the date the appraisal report was communicated. The State of Colorado requires
that Real Estate Appraisers be Licensed (a stage during which an appraiser learns his trade) or Certified to complete any valuation of residential Real Estate. Appraisers are trained to report an unbiased opinion based upon extensive experience and education requirements. Appraisers must abide by a strict code of ethics and must comply with national standards of practice (USPAP the Uniform Standards of Professional Appraisal Practice) for real estate appraisal.
A CMA basically relies on market trends that can be vague. An appraisal relies on specific, verifiable Real Estate transaction data and analysis. An appraisal looks at factors like condition, location, and construction costs that are defensible and carefully documented into an opinion of value. In most cases a CMA is usually created by a Real Estate agent who may or may not have a true grasp of the market or your neighborhood. An appraisal is created by a licensed, certified professional who has made a career out of nothing else but valuing properties. Appraising professionals are your independent voice, with no vested interest in the home. A Real Estate agents livelihood, and commission (or income) is tied to the value of the home unlike an appraiser.
Location of the home and it’s neighborhood norms for interior amenities will differ. Custom designed homes offer significantly different amenity choices than tract homes. Neighborhood markets value those amenities differently. For instance, adding a central air conditioner in may not add significant value to those homes located in the cool afternoon mountain areas, while putting one in a home located in the eastern part of the county might have a higher impact. Most value gained, as a general rule, comes from the kitchen and bathroom areas.
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