What is an appraisal?
An appraisal is a thought process leading to an opinion of value. This opinion or estimate is arrived at through a formal process that typically uses the three ”common approaches to value”. They are the Cost Approach – which is what it would cost to replace the improvements, less physical deterioration and other factors, plus the land value. There is the Sales Comparison Approach – which involves making a comparison to other similar, nearby properties which have recently sold. The Sales Comparison Approach is normally the most accurate and best indicator of 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 produced by the property.
What does an appraiser do?
An appraiser provides a professional, unbiased opinion of market value, to be used in making real estate decisions. Appraisers present their formal analysis in appraisal reports.
Why would a person need a home appraisal?
There are many reasons to obtain an appraisal with the most common reason being real estate and mortgage transactions. Other reasons for ordering an appraisal include:
- To obtain a loan.
- To lower your tax burden.
- To establish the replacement cost of insurance.
- To contest high property taxes.
- To settle an estate.
- To provide a negotiating tool when purchasing real estate.
- To determine a reasonable price when selling real estate.
- To protect your rights in a condemnation case.
- Because a government agency such as the IRS requires it.
- If you are involved in a lawsuit.