Frequently Asked Questions
What is an appraisal?
What does an appraiser do?
What's in an appraisal report?
What are the requirements to be a certified appraiser?
Who hires an appraiser?
What does "Market Value" mean?
What is an appraisal?
An appraisal is a thought process leading to an opinion of value. The real estate appraiser will use a several "approaches," typically three, to draw up the estimation of market value. One of the processes in use is the Cost Approach, which is what it would cost to replace the improvements to the house, minus age and physical dilapidation, plus the land value. Another of the methods is the Sales Comparison Approach - which concerns making a comparable analysis to other similar nearby properties which have recently sold. Being the most popular approach, the Sales Comparison Approach is considered the most accurate and best indicator of market value for a residential property. The third approach is the Income Approach, which is of most importance in appraising income producing properties - it involves estimating what an investor would pay based on the income generated by the property.
What does an appraiser do?
An appraiser offers a fair and credible assessment of market value, often in the context of a real estate exchange. Appraisers illustate their investigation in appraisal reports.
What's in an appraisal report?
The main objective of an appraisal report is to let the reader know the value of the real estate in question, and depending on the scope of the report, you'll usually see the following:
- Who engaged the appraiser and other intended users.
- How the appraisal is supposed to be used.
- The reason for the appraisal.
- Precisely what "value" attribute is being reported and what that value means.
- The effective date of the appraiser's opinions and conclusions.(Sometimes this is in the past or maybe the future for new construction!)
- Relevant property characteristics, including: location, physical description, legal attributes, economic attributes, the property rights valued, and non-real estate items included in the valuation, such as personal property, trade fixtures and even intangible items.
- All known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and other items of a similar nature.
- Division of interest, such as fractional interest, physical segment and partial holding.
- What was included in the activity of completing the appraisal.
For a more comprehensive look at all that goes into an appraisal report click here: Sample Appraisal Report
Who hires an appraiser?
Commonly, appraisers are hired by lenders to estimate the value of a home involved in a loan transaction. Attorneys and CPAs also retain the services of appraisers for divorce and estate settlements.
What does "Market Value" mean?
In real estate appraising, Market Value (as opposed to Fair Market Value) is commonly defined as:
"The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."
