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The real estate appraisal
report consists of detailed findings
of the home, office, or land, etc..
being appraised (or subject property).
Market value is derived once all specific
neighborhood and subject property
information has been summarized.
First, you start off with a physical
inspection of the property being appraised.
Number of bedrooms and bathrooms are
important to ensure that they really
exist and are in reasonable condition.
Also, the inspection ensures the proper
square footage and layout of the property
by including an illustrative drawing.
Obvious defects to the structure of
the property affect the value negatively.
This may included a leaky roof or
hole in the wall.
Once the property has been inspected,
the appraiser chooses from three approaches
of property value. The cost approach,
sales comparison approach, and income
approach.
The Cost Approach
The cost approach is a method based
on the replacement cost (new) of improvements,
plus the market value of the site
(land). For this reason and taking
into consideration the real estate
appraisal process, this approach is
most reliable when improvements are
fairly new. The older the structure,
the less relevance the cost approach
will be. This is due to the greater
subjectivity involved in estimating
accrued depreciation. Location and
amenities are usually not reflected
in this approach. In theory, this
approach is the easiest to understand.
The Income Capitalization
Approach
In respect to income producing properties,
the income capitalization approach
is used. Appraisers use this approach
while concentrating on two factors.
The rents that a property can be expected
to earn and the resale value when
a property is sold. This approach
converts anticipated cash flows into
present value by capitalizing net
operating income using a capitalization
rate. The amount of income the property
produces is then used to arrive at
the current value of those revenues
over the foreseeable future.
The Sales Comparison Approach
The sales comparison approach derives
value by comparing the subject being
appraised to similar properties in
the area that have sold recently.
This approach is based upon the theories
of supply and demand, balance, and
substitution. In general, supply and
demand forces tend to move toward
equilibrium in the market. Adjustments
are made to comparables for differences
in such factors as time of sale, location,
quality, condition, and amenities.
The appraisal report ensures that
the adjusted values of the comparables
are then reconciled into a value conclusion
for the subject.
The Appraised Value
The real
estate appraisal is used to derive
at the appraised value. The appraised
value is used as a guideline by lenders
who will not loan a buyer more money
than the property is worth.
It is very important to note that
the appraised value may differ from
the final sales price of a property.
Bidding wars and seller motivation
may adjust this price above or below
this value.
Key Terms
Appraiser
Process Explained - Certified
and Licensed Appraiser - Learn
how the appraiser process is performed.
A licensed real estate appraiser uses
his or her knowledge of the real estate
market to derive at property value.
Real
Estate Appraiser Jobs - Trainee
and Experienced Appraisers - How
do you become a property appraiser?
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