Simple answer: To establish a fair market value* of a home or property.

Appraisals are often used for mortgage loans and to determine property taxes. Other reasons for obtaining an appraisal report include services listed on the home page.

*Market value is defined by the Federal Financial Institutions Regulatory Agencies as follows:

Market value means; The most probably price that a property should bring in under all conditions requisite to a fair sale, wherein the buyer and the seller, each acting prudently and knowledgeably, assuming the price is not effected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of the title from the seller to the buyer under conditions whereby:

1. The buyer and seller are typically motivated.
2. Both parties are well informed or well advised and acting in each of their own best interest.
3. A reasonable marketing time is allowed for exposure in the open market.
4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements.
5. The price represents the normal consideration for property sold unaffected by the special or creative financing or sales concessions granted by anyone associated with the sale.

(SOURCE: OFFICE OF THE COMPTROLLER OF THE CURRENCY UNDER 12 CFR, PART 34, SUBPART C-APPRAISALS, 34.43 DEFINITIONS)

An appraisal specifically addresses the value of a particular property while a home inspection addresses construction deficits, deferred maintenance and any repairs (major or minor) required for the longevity of the property.

All states require that a real estate appraiser be state licensed or certified. The state licensed or certified appraiser is trained to render an unbiased opinion based upon extensive education and experience requirements.

They must abide by a strict industry code of ethics and comply with national standards of practice for real estate appraisal.

The rules for developing an appraisal and reporting its results are insured by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP) and are enforceable by the state of Colorado. USPAP is considered the “Appraiser Bible.”

In the state of Colorado, appraisers may be licensed, certified, or certified general. All levels must pass a state exam and complete annual continuing education credits.

• A licensed appraiser must complete 1000 hours of on the job training and 150 hours of coursework. They also must have completed the equivalent of an Associate’s degree.
• A certified appraiser must complete 2000 hours of on the job training and 200 hours of coursework, as well as possess a Bachelor’s degree or equivalent required qualifying college classes.
• A certified general appraisal license is required to complete property valuations on apartments, buildings (large or small) that are not used as residential dwellings and commercial properties.

Ryan Bustos of Blue Ribbon Appraisals is a State of Colorado Certified Residential Appraiser.

Lenders and credit unions typically have their own dedicated panels of appraisers or utilize a third-party appraisal management company. These panels randomly select appraisers for assignments so that one particular appraiser typically cannot be chosen for one particular assignment. This was put into place in the early 2010’s to avoid coercion within the appraisal industry.

Absolutely. A lawyer typically has 2-3 appraisers that they have worked with in the past. They will often refer their clients to these appraisers, being a trusted member of their team. Ryan Bustos with Blue Ribbon Appraisals is on numerous lawyer and estate services lists to perform property appraisals when requested.

Gathering data is one of the primary roles of an appraiser. Data can be divided into two categories: specific and general.

Specific data is gathered from the home itself, including (but not limited to) location, condition, amenities, square footage, basement size, and finishes along with the overall quality and costs of the construction materials used within the property. Updating, upgrading, and improvements to the home typically affect its overall value.

General data is gathered from multiple sources.

• Local Multiple Listing Services (MLS) provide data on recently sold homes that can be used as comparable sales.
• Tax records and other public documents verify actual sale prices within a market.
• Flood zone data is gathered from FEMA data outlets, such as the appraisal software’s partnership with the product known as InterFlood.
• General data from the appraiser’s previous and relevant experiences in creating appraisals for other properties in the same market.

Typical appointments will take between 45 – 90 minutes.

During the appraisal observation, the appraiser will measure the exterior walls of the home and record them on a sketch. A clear path is necessary around the exterior of the property. Photos will be taken of all sides and/or elevations of the property while measuring.

Once the exterior is measured and photographed the appraiser will enter the interior of the property for observation.

During the interior review, all rooms will be photographed and room locations labeled within the sketch. A sample size of light switches and all faucets will be checked to verify functionality. Access to all rooms within the property is needed including the garage, basement, and crawl space areas (if utilities are within crawl space). A clear view of all walls, floor areas, ceilings, and closets is necessary. Unless otherwise specified, the appraiser will not need to look within the attic.

If there is any recent updating or remodeling within the subject property, it is extremely helpful to provide a cost sheet of these items to the appraiser at or before the appraisal observation.

A professional will look beyond any clutter in the home to assess the true property value. Although a messy or dirty house does not affect the appraisal, it is beneficial for the homeowner to tidy up to ensure that the appraiser can clearly view all walls, floor areas, ceilings, and closets. It is necessary to take photographs of all interior rooms.

Ryan Bustos with Blue Ribbon Appraisals has created an extensive “Engagement Letter” that outlines each party’s responsibilities throughout the entirety of the appraisal process. This “Engagement Letter” has been viewed and approved by many lawyers and countless homeowners. It provides a paper trail for items such as (but not limited to) appraisal due dates, intended users, the appraiser’s scope of work along with money paid/owed.

The appraisal report is owned by “the party that orders the assignment” – which is not necessarily the party who pays for the appraisal. Appraisers are required to label the party that ordered the appraisal as “the client,” even if the client does not pay the fee.

When a report is fully completed, it is delivered (via email) to the party that ordered it unless other arrangements have been made through the engagement letter.

In being asked this question countless times, the answer always provided is, “In finishing a basement, DO NOT do it for value, rather do it for you (and your specific needs). The initial value in new basement finishes is the “Value In Use.” The overall extended value of a basement finish typically comes at a later time due to the natural progression of the neighborhood along with the pay-down of the loan on the house.”

Basement square footage is not gross living area. Basement space is typically less valuable than square footage that is on the main and upper levels of a property.

It typically takes 6-12 years for the finished basement area to “catch up” to the amount you invested — compared to equity that would exist on a loan. Typically, there is not a dollar-for-dollar increase in value.

A comparative market analysis (CMA) is typically created by a real estate agent. Agents specialize in transactions and have a general knowledge of the real estate market. A CMA will provide a non-specific figure (a.k.a. price range).

An appraisal is created by a licensed and/or certified professional who has made a career out of valuing properties. An appraiser possesses the tools and the valuation concept know-how to be able to report with a true grasp of the real estate market. An appraiser delivers an independent, unbiased, 3rd party opinion of value that is both defensible and carefully documented in alignment with the Uniform Standards of Professional Appraisal Practice (USPAP). Appraisal reports will provide a specific dollar value by using similar market sales which are considered as viable and valid resources.