An appraisal of real estate is the valuation of the rights of
ownership. The appraiser must define the rights he intends to
The appraiser does not create value; the appraiser interprets
the market to arrive at a value estimate. As the appraiser compiles
data pertinent to a report, consideration must be given to the site
and amenities as well as the physical condition of the property. An
appraiser may spend only a short time inspecting the property,
however, this is only the beginning.
Considerable research and collection of general and specific
data must be accomplished before the appraiser can arrive at a
final opinion of value.
Due to the many types of value, such as Fair Market Value,
Insurance Value, Tax Value and Value In Use, the need to precisely
define the purpose of the appraisal is essential.
An appraisal is an opinion of value or the act or process of
estimating value. This opinion or estimate is derived by using
three common approaches, all derived from the market. They are:
Cost Approach to value is what it would cost to
replace or reproduce the improvements as of the date of the
appraisal, less the Physical Deterioration, the Functional
Obsolescence and the Economic Obsolescence. The remainder is added
to the Land Value.
Comparison Approach to value makes use of other
"bench mark" properties of similar size, quality and location that
have been recently sold. A comparison is made to the subject
Income Approach to value is of primary
importance in ascertaining the value of income producing properties
and has little weight in residential type properties. This approach
provides an objective estimate of what a prudent investor would pay
based upon the net income the property produces.
Then, after thorough analysis of all general and specific data
gathered from the market, a final estimate or opinion of value is