Everything you need to know about Home Appraisal

A home appraisal is essential in the process of buying or selling a home, pre-listing, as well as refinances of an existing mortgage or loan. Lenders require appraisals as security for potential buyers of new homes in applying for a mortgage. An appraisal provides you with a justifiable opinion of value. The appraisal report should be able to stand alone on its own merits.

Looking for a home appraisal in the greater parts of Loveland, Fort Collins, & Greeley Areas?
We’ll help you make well-informed real estate decisions. Call NoCo Valuations at 970-541-9022.

What is an appraisal?

An appraisal is the act of process of developing an opinion of value. An appraisal must be numerically expressed as a specific amount, as a range of numbers or a relationship to a previous value opinion or numerical benchmark.

Appraisal Approach:

A systematic process of developing opinion of value. Depending on the nature of the property, purpose of the assignment, and scope of work, three (3) approaches may be applied:
(Taken from Page 10; The Dictionary of Real Estate Appraisal 6th Edition)

The 3 Approaches to Value:

  1. Sales Comparison (Theory of Substitution)
    • The objective is to formulate an opinion of value based on the recent sales of properties of similar use, size, location influences and other factors that have an influence on value and makes the most direct use of the Principle of Substitution.
  1. Cost Approach (Theory of Substitution)
    • The objective is to formulate an opinion of value based on estimating the cost to reproduce or replace the existing structure including builders profit, deducting depreciation from the total cost, adding estimated land value.
  1. Income Capitalization (Theory of Anticipation)
    • The objective is to formulate an opinion of value based on the earning capability of the property and calculated by the capitalization of the property income.

What is the purpose of an appraisal?

The purpose of an appraisal is determined by the client and there are many reasons a client will engage an appraiser and some include:

  1. Lenders will typically engage an appraiser to develop an opinion of value of the collateral or the transaction for risk management purposes.
  2. Homeowners may engage an appraiser for the following purposes:
    1. Tax Appeal – Homeowner may feel their property tax assessment is too high.
    2. For Sale by Owner– Homeowner may want to place the property for sale without a realtor and want an opinion market value to price the property.
    3. Removing PMI – Many homeowners pay Private Mortgage Insurance since they put less than 20 percent down on the property at the time of purchase. A new appraisal may allow removal of the insurance premium saving the homeowner money each month.
  3. Realtors may engage an appraiser for an opinion of value prior to listing the property or a property that has been on the market for some time.
  4. Attorneys, Accountant, or Financial Planners may engage an appraiser for:
    1. Divorce
    2. Bankruptcy
    3. Estates and Trusts
    4. Date of Death Valuation
    5. Condemnation or eminent domain

What hurts a home appraisal?

A homeowner may ask “Why is the market value of my home less than a similar home across the street?” Using the “Sales Comparison Approach” to value, an appraiser will compare recent sales of properties similar in use, size, location influences and other factors that have an influence on the value and makes the most direct use of the Principle of Substitution.

Although each neighborhood is different, some items that may have an adverse effect on value:

  1. Overall Condition – Most markets place a premium for home updates and minimal deferred maintenance. A home with older mechanicals, roof, with no updates, and some differed maintenance will typically sell for less than a home will some updates and limited differed maintenance.
  2. Externalities – External influences such as railroad track, traffic noise, commercial or industrial land use views and aircraft influences may have an adverse effect on value.
  3. Functional Issues – The layout and flow of the property may have adverse effect on home values. Buyers will compare the homes functionality to other comparable homes in the area. Functional issues could include:
    1. A property that has only one garage space in a neighborhood whereas a 2-car garage is typical.
    2. A property with only 2 bedrooms that competes with homes with 3 bedrooms.
    3. Floor plan issue like having to go through a bathroom to reach a bedroom.

What is an appraiser?

One who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective. (Taken from USPAP 2016-2017 Edition)

Real estate appraisers work in localities that they are familiar with to be aware of any environmental concerns (externalities) that may affect the property’s value.

Appraisers are licensed by the State of Colorado.

Three (3) levels of licensing:

  1. Licensed Appraiser
    1. Can appraise non-complex 1-4 unit residential properties having a transaction value of less than $1 million and complex 1-4 unit residential property having a transaction value of less than $250,000.
  1. Certified Residential Appraiser
    1. Can appraise 1-4 unit residential properties without regard to transaction value or complexity. The credential includes the appraisal of vacant or unimproved land that is utilized for 1-4 family purposes or for which the highest and best use is for 1-4 family purchases, but does not include land for which a subdivision analysis is necessary.
  1. Certified General Appraiser
    1. Can appraise all types of real property.


We serve the greater areas of Larimer and Weld Counties of Colorado. Call us at 970-541-9022.

We’ll help you make well-informed real estate decisions.

Receive a complimentary price quote for the Appraisal Service that fits your needs.