Appraisals

An appraisal is an opinion of value. For estate planning, financial planning, or sale price decisions, individuals or a trusted adviser typically order an appraisal. When an appraisal is used to obtain an opinion of value of a property for loan purposes, federal regulation requires the lender to place an appraisal order. The lender then contacts a state licensed or certified appraiser and identifies the property to be appraised and the intended use of the appraisal. The appraiser then determines the appropriate scope of work for the assignment.

  • If an appraisal requires an inspection, an appraiser will contact the homeowner (or, in the case of a sale, an agent or the seller) to inspect the interior and exterior of a property.
  • An appraiser will research county and municipal records, Multiple Listing Service (MLS) records, and other data services for information and documentation concerning the subject property and market area.
  • An appraiser will review recent sales and listings of comparable properties. Comparables are recently sold or listed properties that have similar utility, quality, age and amenities as the subject property and are located in the subject property’s market area. In markets where few sales have recently occurred, comparables may be from similar or nearby neighborhoods.
  • An appraiser may use the sales comparison approach to develop an opinion of value. Often, the primary approach to developing an opinion of value for a residential property utilizes recent sales of comparable properties. This is known as the sales comparison approach. An appraiser will analyze and compare characteristics that include the living area of the home, land area, style, age, quality of construction, number of bedrooms and bathrooms, presence or absence of a garage, etc.
  • The cost approach is another method an appraiser may use to develop an opinion of value. The cost approach is the appraiser’s opinion of the current replacement cost of constructing a reproduction of the existing structure, less any estimated depreciation, plus the value of the land. The cost approach is a valuable approach to use when appraising newer homes that might have little or no depreciation.
  • Lastly, an appraiser may utilize the income approach. The income approach is most often used in appraisals of properties that have two, three or four living units, where income is a factor in the decision-making process of buyers and sellers. It is generally not used for one-unit residential properties in areas where the majority of the homes are owner-occupied.
  • After data collection and analysis, the appraiser will develop an opinion of value by considering the indicated value(s) of the sales comparison approach, as well as the cost approach and/or income approach, if applicable. The values indicated by the approaches utilized will be reconciled to a final opinion of value. The appraiser will present his or her findings and conclusions in a report to the lender.