Real Estate Appraisal Process

The Appraisal Process

Real estate appraisal is the process of developing an opinion of value of real property. Real estate transactions often require appraisals because they occur infrequently and each property is unique, especially in terms of location, condition, use, etc. Appraisal reports form the basis for mortgage loans, settling estates and divorces, taxation, and in our case, to establish the sale price for a property.

The process includes an examination of land and property records and a detailed inspection of each property to provide data to allow an evaluation to be made on the basis of one or more of three standard approaches to valuation: Income, Sales Comparison, or Cost.

The appraiser considers the way that most buyers buy a type of property. This guides the appraiser's thinking on the best valuation method, in conjunction with available data. For instance, appraisals of properties that are typically purchased by investors, such as office buildings, may give greater weight to the Income Approach. Buyers interested in purchasing single family residential property would rather compare price; in this case the Sales Comparison Approach (market analysis approach) would be more applicable. The third and final approach to value is the Cost Approach. The Cost Approach is most useful in determining insurable value, and cost to construct a new structure or building.

The appraiser has to think about the "scope of work", the type of value, the property itself, and the quality and quantity of data available for each approach. No overarching statement can be made that one approach or another is always better than one of the other approaches.

As indicated in the attached table, Noce and Kaffenberger attempted to determine the value of each property according to each of the three methods wherever possible and then made a judgment as to which method resulted in the most appropriate value.

Sources: www.investopedia.com, www.wikipedia.com,www.appraisalistitute.org