Appraisal Definitions

What is an Appraisal?

An appraisal is a process leading to an opinion of value.  This opinion or estimate is generally arrived at through consideration of three different approaches to value – the Sales Comparison Approach, the Cost Approach, and the Income Approach.

The Sales Comparison Approach is normally the most accurate and best indicator of value for a residential property.  Using this method, the appraiser analyzes sales of comparable homes from the subject’s market and develops an opinion of the subject property’s current market value.

The Cost Approach – which is what it would cost to replace the improvements, less physical deterioration and other factors, plus the land value.

The third approach is the Income Approach, which is most important in appraising income producing properties – it involves estimating what an investor would pay based on the income produced by the property.

What is the difference between a home inspection and an appraisal?

A home inspector evaluates the physical condition of a building: the structure, construction and mechanical systems, identifies items that should be repaired or replaced, and estimates the remaining useful life of the major systems (such as electrical, plumbing, heating, air conditioning), equipment, structure and finishes. An inspector does not estimate the market value of a home.

An appraisal report is a document that provides an estimate of a property’s market value. Lenders require appraisals on properties prior to loan approval to ensure that the mortgage loan amount is not more than the value of the property.  In most cases, appraisals done are for the benefit of lenders, and home inspections are for buyers.

There are many reasons to get an appraisal

Every year, countless people in the United States buy, sell or refinance real estate. Most of these transactions involve mortgage lenders who require appraisals as verification of the value of the property in question. However, there are many other reasons people order appraisals.
If you need to consolidate bills, have a college tuition to pay, or just want to tap into the equity of your home, you’ll need a new loan. This usually requires a new appraisal of the property.    

Appraiser Jargon

Have you heard an appraiser use an unfamiliar term, or found terminology in appraisal report you didn’t understand? Appraisers don’t intend to speak a foreign language, but every profession has its jargon. Here are some examples of common appraiser jargon and their meanings: