| The purpose of appraisal is to estimate the value of the propery generally refers to its fair market value. The purpose and use of appraisals include transfer of ownership, financing and credit, taxation, condemnation, insurance and many others. An appraiser is typically a state-licensed individual trained to render expert opinions concerning property values.
Authorized by Congress, The Appraisal Foundation sets minimum standards for licensed appraisers. The Foundation is the parent organization of the Appraiser Qualifications Board (AQB). States are required to implement appraiser certification requirements which are at least as rigorous as those issued by the AQB.Certified General Appraiser and Certified Residential Appraiser.
The AQB has issued criteria for the Certified General Appraiser and Certified Residential Appraiser. Each has education, experience, examination and continuing education requirements. Consider working with either a Certified General or Certified Residential Appraiser.
The appraiser considers three approaches to value when arriving at an opinion: sales comparison approach (formerly the market data comparison approach), cost approach and income capitalization approach. When evaluating single-family, owner-occupied properties, the sales comparison approach is most heavily weighted by an appraiser. This approach compares the subject property with other similar properties in the vicinity which have sold or are for sale. Real estate professionals also rely heavily on this approach.
Real estate agents approximate the appraisal process by conducting a Comparative Market Analysis (CMA), using the sales comparison approach to value. The accuracy of the agent's appraisal depends on the experience and skill of the agent. The CMA is not an officially recognized appraisal.
Most lenders will not lend money without an acceptable appraisal. You can be sure you are getting an expert appraisal when the appraiser is licensed or certified and is governed by the Competency Provision of the Code of Ethics of the Uniform Standards of Professional Appraisal Practice (USPAP), proclaimed by the Appraisal Foundation.
Appraisal Methods
Most appraisers use three approaches to establish the value of a property. The Sales Comparison Approach is normally considered to be the best indication of value for residential property.
- Sales Comparison Approach: In this approach the appraiser finds three to four comparable properties in the neighborhood which have recently sold. Ideally, these properties are within a one-half mile radius of the subject property and have sold within the last six months. The appraiser compares the sold properties to the subject property. The factors used in the comparison include square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition.
- Cost approach: This approach considers the value of the land, assumed vacant, added to the cost to reconstruct the appraised building as new on the date of value, less the accrued depreciation the building suffers in comparison with a new building.
- Income capitalization approach: In this approach the potential net income of the property is capitalized to arrive at a property value. This approach is suited to income-producing properties and is usually used in conjunction with other valuation methods. The process of converting a future income stream into a present value is known as capitalization.
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