Simply put, an appraisal is the determination of the value of a property. What follows is a description of the steps in that process.

The Inspection

An appraisal begins with the inspection, the purpose of which is to establish the true state of a property. The appraiser is required to actually observe aspects of the property—its location and general condition, the number of bedrooms and bathrooms, etc.—to verify their existence and to confirm that their condition is what a buyer would reasonably expect.

An appraiser will often make a sketch of the property, documenting its square footage and physical layout. Overall, the most important part of the inspection is to look for anything, good or bad, that influences the property’s value.

After the inspection, there are three approaches to ascertaining the value of a property: a cost approach, a sales comparison and, in the case of a rental property, an income approach.

Cost Approach

Using the cost approach, the appraiser determines how much it would cost to build a house like the one being appraised. This includes adding up costs for labor and materials, as well as other factors, and then setting the resulting figure as the highest possible selling price for the property.

The reasoning behind this approach is that a reasonable buyer wouldn’t want to pay more for an existing house than it would cost to build a new one. Location, amenities, and other mitigating elements are not generally factored into the cost approach.

Sales Comparison

The sales comparison includes the value of the mitigating elements that the cost approach leaves out—things like the quality of the schools, the condition of the roads, the makeup of the local government, etc.

Experienced appraisers know the areas they work in and understand the value of the mitigating aspects and how they influence the price of a property.

So the next step is to research recent sales in the neighborhood to find homes comparable in terms of size and construction to the one being appraised. With these sale prices as a basic starting point, the appraiser begins to develop a sales comparison.

Here again the experience and knowledge of the appraiser is crucial. Evaluating the subject property next to the comparable property feature by feature, the appraiser can adjust the sale price of the comparable to more finely determine an accurate price for the property being appraised.

For instance, if a comparable property doesn’t have a greenhouse and the subject property does, the price for the comparable is increased by the value of that greenhouse. If the comparable has an extra walk-in closet that the subject does not, the value of the extra closet is deducted from the price of the comparable. The appraiser’s knowledge of the value of amenities is invaluable in determining a realistic, viable sales comparison.

Income Approach

Income-producing properties utilize the income approach in determining an accurate valuation. This approach entails ascertaining the current rents in the area for similar properties and using that to determine future revenues.

Reconciliation

Armed with the information gleaned from one or more of these approaches, an appraiser can confidently estimate the market value of the subject property. While this figure is the best estimate of the property’s worth, it’s important to regard it as a guideline rather than a final selling price, which can be affected by factors like seller motivation and market demand. The appraised value, however, is essential information for the lending institution in its determination of how much to lend a potential buyer.

An experienced and knowledgeable appraiser is key to making intelligent and informed decisions in every phase of buying and selling real estate.

A real estate appraisal is central to the buying and selling of properties.

There are other situations, however, which can benefit from an appraisal from a licensed and certified appraisal company. They include:

• Estate settlement
• Marital divorce
• Residential investment and “flipping”
• Bankruptcy
• Home measurement
• Property pre-listing, pre-purchase and “for sale by owners” (FSBO)
• Financial planning and trusts
• Private Mortgage Insurance (PMI) removal
• Pre-foreclosure and short sales
• Tax assessment appeals

Because the compensation for an appraisal company’s services is not based on the selling price of a property, an appraisal is an accurate, fair and non-biased determination of a property’s value.

Property owners can confidently rely upon appraisals in making any and all real estate decisions.

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We have extensive experience in a wide variety of real estate appraisal services, including litigation support and expert witness services.

The job of an appraiser is above all to maintain an unbiased approach to property appraisal. In that capacity we can offer advice, consultation, analysis and research should you need to determine the accuracy of a property’s value for legal purposes.

A CMA is a comparative market analysis, used in determining the current market value of a property. This enables a property owner to decide on a listing price that will result in as quick and as profitable a sale as possible.

The CMA is derived from the MLS, or multiple listing service, and is a compilation of properties for sale in the area, sold property data, historical trends and data from tax rolls. It’s created by a real estate agent. Brokers and agents contribute to the MLS by pooling information about their current listed properties.

Included in the CMA are recently sold homes in a specific neighborhood that are similar in appearance, selling price and amenities. It contributes to the establishing of a fair market value of a property, which is important to buyers, sellers and lenders alike.

The difference between an appraisal, carried out by a licensed appraiser, and a CMA, compiled by a real estate agent, is that the appraiser is not invested in the outcome.
When a buyer applies for a loan, the bank hires an appraiser and orders an appraisal to be made. This is necessary for the bank to avoid lending too much money to a buyer.

During the appraisal process, the appraiser visits the seller’s property and carefully documents all aspects of it. The appraiser then compiles the data and compares it with other, similar properties.

Using information from several sources, including tax rolls, the MLS, recent sales data and area sales trends, the appraiser arrives at a sales price for the bank to use in its determination of the amount of money to lend a buyer.