Appraisal Basics
Real estate appraisal is used to determine the value of the property. The exact reason for the appraisal must be established prior to the start of the appraisal to ensure that the correct value is assessed. The appraiser evaluates market conditions to assist in the value determination. Not only is the property value assed at this time, but the property’s amenities and physical condition are also taken into consideration. The final value of the property is decided when a complete report including research and the accumulation of other relevant data are completed.

Appraisal Methods
The value of a property is determined through the process of appraisal and three different methods are used most commonly to assess a property’s value. These three methods are the Cost Approach, Comparison Approach, and the Income Approach. The Cost Approach evaluates the cost to make improvements to the property at the time of appraisal, minus factors including physical deterioration, economic obsolescence, and functional obsolescence. The final property value is called the Land Value. Through the Comparison Approach, appraisers use other properties of similar size, location, and quality as bench marks. The property that is being appraised is then compared to these bench mark properties to determine the property’s true value. Finally, the Income Approach is used to determine the property value primarily of commercial real estate. This methodology provides an objective estimate of what a practical investor would pay based on the net income the property produces. The final property value is connected to all three of these methods.

Reasons for an Appraisal
Obtaining an appraisal of the property you intend to purchase or sell is a very important step. Appraisals should be completed to obtain a loan, reduce your taxes, determine insurance costs, to assist you in making your purchase decision, help determine a reasonable price when selling your property, government agencies including the IRS require appraisals, and appraisals are also important if you become involved in a lawsuit. Real estate appraisals not only protect your investment in the short term but can play an important role in the future and this is the most important reason to obtain an appraisal.