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What is an appraisal?

An appraisal is a formal, impartial estimate or opinion of value (usually written). The estimate of value is as of a specific date and is based on a thorough examination of local market activity.

Why Do I Need an Appraisal?

Any time you buy, sell, or refinance real estate, you may need a real estate appraisal. The primary purpose is to find out exactly how much your property is worth. Banks and lending institutions typically require an appraisal, before a buyer can obtain a mortgage. Additional reasons for requiring an appraisal may include legal disputes, divorces, estate work, etc.

What Are The Different Types of Appraisals?

Full Appraisal – When a Full Appraisal is ordered, the appraiser completes and interior and exterior inspection of the subject property in order to value it.

Drive-By (Limited) Appraisal – When a Drive-By Appraisal is ordered, the appraiser completes a visual inspection of the subject property from the street.

Desktop Appraisal – When a Desktop Appraisal is ordered, the appraiser completes an appraisal from the office, and no inspection is required. Details are gathered from previous MLS listings of the subject.

Progress Inspection – When a Progress Inspection is ordered, the appraiser inspects the subject property to estimate the percentage in which the property is complete. Progress Inspections are typically ordered on Construction Mortgages, where owners/builders are building a new home.

What Information Will I Find In An Appraisal?

  • the estimate of value
  • the effective date of the appraisal
  • the certification and signature of the appraiser
  • the purpose of the appraisal
  • the qualifying conditions
  • the condition of the neighborhood
  • an identification of the property and its ownership
  • an analysis and interpretation of the data and the assumptions made
  • the processing of the data by one or more of the three approaches to value
  • other descriptive support material such as maps, plans, charts, photographs, etc.


How Is Value Estimated?

Current appraisal standards recognize three basic approaches to real estate value. These are identified as the Cost, Income, and Direct Comparison Approaches.

The Cost Approach to value is developed by two fundamental opinions: the value of the land and the value of the improvements to the land. Initially, the current fair market value of the land is estimated as if unimproved and capable of being put to its highest and best use. The reproduction or replacement cost new of the improvements, less any depreciation, is then added, along with any contributory value of the site improvements. The validity of the resulting value estimate is impacted to varying degrees by the accuracy of the cost estimates and the depreciation estimate.

The Income Approach measures value by capitalization of the net income from the real estate. The potential gross income is first estimated based on data derived directly from the market. Deductions are then made for vacancy and collection loss, and normal operating expenses. The resulting net income figure is then converted to a value estimate by any one of several capitalization methods.

The Direct Comparison Approach is based on comparison between the subject property and similar properties which sold within a reasonable period prior to the date of appraisal, and which are capable of providing insight into the valuation of the subject property. Units of comparison are examined and developed, and after making the appropriate adjustment for differences such as location and physical characteristics, are then applied to the subject to derive an indication of value. Critical in this valuation methodology, is the availability of sufficient market comparables with which to make valid comparisons.

In arriving at a final estimate of value, appraisers will use some or all of these valuation approaches according to what is supported by the most relevant, current and factual market data available.


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