Basics of Appraisals & Appraisers that Perform Them

How appraisals are used

A real estate appraisal is an independent estimate of a property’s market value. Typically the appraisals are used in the mortgage lending process, litigation or when estimating property value during the buying or selling process, for ad valorem tax purposes or for insurance purposes.

How they are performed

A real estate appraiser typically works according to a contractual agreement. In general, appraisers follow three well-established methods and approaches to estimate the market value of real property. They are:

Sales Comparison Approach: a set of procedures in which a value indication is derived by comparing the property being appraised to similar properties that have recently sold.

Cost Approach: a set of procedures through which a value indication is derived by estimating the current cost to construct a reproduction of the existing structure deducting the accrued depreciation and adding the estimated land value.

Income Approach: a set of procedures through which an appraiser derives a value indication for an income producing property by converting its anticipated income potential into property value.

What do Real Estate Appraisers Do?

REAL ESTATE APPRAISERS are specialists in estimating the value of real
property. Real property consists of land, buildings, and natural resources
such as water, oil, or minerals. Estimates of value, known as appraisals,
are made when property is bought, sold, assessed, taxed, condemned, insured,
or mortgaged. They may also be required in divorce actions, when
partnerships are dissolved, and when property is listed as a business asset.
Appraisers, especially independent fee appraisers, may give expert
testimony in court. They may also act as consultants.

Real Estate Appraisers prepare a written description of the property and
make an estimate of its value. They may complete standardized checklists as
they evaluate the property and the neighborhood in which it is situated.
Appraisers obtain land values from county sources and sales information
about nearby properties. They also examine the income records and operating
costs of income properties. Appraisers estimate building replacement costs
using building valuation manuals and professional cost estimators.

They also verify legal descriptions of property with county records,
measure the property and compare the measurements with the legal descriptions.
They draw land diagrams and note conditions and special features of buildings.
Appraisers analyze and evaluate the data and prepare a written report
outlining methods by which the fair-market value was estimated. At times it
is necessary for a senior appraiser to review these reports. Appraisers
generally work alone; however, consultants may be used for more complex
appraisals.