STEP 7: Appraisal
An appraisal of real estate is the valuation of the property. The appraiser interprets the market and examines the dwelling and property to arrive at a value estimate. As the appraiser compiles data pertinent to a report, consideration must be given to the square footage of the dwelling, the site and amenities, as well as the physical condition of the property. Considerable research and collection of data must be completed prior to the appraiser arriving at a final opinion of value.
Using three common approaches, which are all derived from the market, the appraiser derives the opinion, or estimate of value. The first approach to value is the COST APPROACH. This method derives what it would cost to replace the existing improvements as of the date of the appraisal, less any physical deterioration, functional obsolescence, and economic obsolescence. The second method is the COMPARISON APPROACH, which uses other "bench mark" properties (comps) of similar size, quality and location that have recently sold to determine value. The INCOME APPROACH is used in the appraisal of rental properties and has little use in the valuation of single family dwellings. This approach provides an objective estimate of what a prudent investor would pay based on the net income the property produces.