What is an Appraisal?

An Appraisal of Real Estate is the valuation of the rights of ownership. An Appraiser must first define the rights he intends to Appraise. Rather than creating value, the Appraiser simply interprets the market to arrive at a value estimate of the object. While the Appraiser compiles the data required for a report, consideration is given to the site and amenities as well as the physical condition of the property. While an Appraiser usually spends only a short period of time inspecting the property, the Appraiser carries out numerous further tasks at his desk.

Considerable research and collection of general and specific data must be carried out by the Appraiser before he can arrive at a final opinion of value for the object. Since there are many types of value, such as fair market value, insurance value, tax value and value in use, the need to precisely define the purpose of the Appraisal is essential.

Appraisal Methods

An appraisal is defined as:

• An opinion of value
• The act or process of estimating value

The opinion or estimate is derived by using three common appraisal approaches:

Cost Approach:
An estimate what it would cost to replace or reproduce the improvements as of the date of the appraisal, less the physical deterioration, the functional obsolescence and the economic obsolescence. The remainder is added to the land value.

Comparison Approach:
A benchmark of properties of similar size, quality and location that have been recently sold is made to which the subject property is then compared.

Income Approach:

Once a thorough analysis of all general and specific data gathered from the market is completed, a final estimate or opinion of value is correlated.