What is an Appraisal

An Appraisal is an estimate of a property’s fair market value. The Appraisal is performed by an “Appraiser” that is a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.

What are Appraisal Methods?

There are 3 common approaches used by Appraisers to establish a property value. After evaluating all 3 methods, a final value is estimated. When evaluating single-family, owner-occupied properties, the Sales Comparison Approach is the most common approach to valuations.

• Cost Approach – A formula is used to obtain the property value: Land value (vacant) added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation.
• Sales Comparison Approach– The Appraiser identifies 3 to 5 comparable sales or listings. These properties ideally have sold in the previous 6 months and within close proximity of the subject property. A comparison is done between the recently sold properties and the subject property including square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition.
• Income Approach– The potential net income of the property is capitalized to arrive at a property value. Capitalization is the process of converting a future income stream into a present value. This approach is more suited to income producing properties and is used in conjunction with other valuation methods.

Who owns the Appraisal?

The lender owns the appraisal even though the borrower paid for it. This is because the lender orders the appraisal on the borrower’s behalf, and the Appraiser lists that lender on the report. The borrower will receive a copy of the report.