The Appraisal of Real Estate
Real estate appraisals are conducted for the purpose of determining value of real property. This is required in all mortgage lending as the property is the security for the loan. Thus, the appraisal establishes the property so lenders can be assured of the value. Additionally, appraisals establish the value of property being bought and sold. Many times the establishment of value is a condition of the purchase contract.
Property is appraised using three different criteria:
A.) The market data approach. This is most common method and usually used in residential property where the comparable properties (or comps) are used, or compared, to establish the fair market value.
B) The income approach. This method employs data from the property’s ability to generate income taking in to account gross rent, expenses, taxes and other information to arrive at the net income. This method is used in appraising commercial property.
C) The Replacement method. Another method of establishing value is to estimate how much it would cost to reproduce the subject property. The theory being that a property is not worth more than it would cost to rebuild it. Exceptions are properties possessing antiquity or other value not easily reproduced. Thus an estimate based on rebuilding it using such data as construction costs per sq/ft etc.
ADDITIONAL SOURCES OF INFORMATION
Office of Real Estate Appraisers
1755 Creekside Oaks Drive, Suite 190
Sacramento, CA 95833
www.orea.ca.gov
Appraisal Institute
550 W Van Buren Street, Suite 1000
Chicago, IL 60607
(312) 335-4100
http://www.appraisalinstitute.org/
National Association of Real Estate Appraisers
1224 North Nokomis Street NE
Alexandria, MN 56308
(320) 763-7626
www.iami.org
The American Society of Appraisers
555 Herndon Parkway, Suite 125
Herndon, VA 20170
(703) 478-2228
www.appraisers.org
State of California website.
Office of Real Estate Appraisers
1102 Q Street 4100
Sacramento CA 95814
(916) 552-9000
http://www.orea.ca.gov/
Some Commonly Asked Questions About Real Estate Appraisers and Appraisals
Who are real estate appraisers, and what do they do? Here are some answers!
What is an appraisal?
An appraisal is a professional appraiser's opinion of value. The preparation of an appraisal involves research into appropriate market areas; the assembly and analysis of information pertinent to a property; and the knowledge, experience and professional judgment of the appraiser.
What is the role of the appraiser?
The role of the appraiser is to provide objective, impartial and unbiased opinions about the value of real property—providing assistance to those who own, manage, sell, invest in and/or lend money on the security of real estate.
What qualifications must appraisers have?
At minimum, all states require appraisers to be state licensed or certified in order to provide appraisals to federally regulated lenders. However, appraisers who become designated members of the Appraisal Institute have gone beyond these minimum requirements. They have fulfilled rigorous educational and experience requirements and must adhere to strict standards and a code of professional ethics. The Appraisal Institute currently confers the MAI membership designation on those who are experienced in the valuation of commercial, industrial, residential and other types of properties. The SRA membership designation is held by those who are experienced in the analysis and valuation of residential real property.
How do well-credentialed appraisers add value to real estate transactions?
They bring knowledge, experience, impartiality and trust to the transaction. In so doing, they help their clients make sound decisions with regard to real property.
What are the components of an appraisal report?
Most appraisals are reported in writing, although in certain circumstances, an appraiser may provide an oral appraisal. A written appraisal report generally consists of: a description of the property and its locale; an analysis of the "highest and best use" of the property; an analysis of sales of comparable properties "as near the subject property as possible"; and information regarding current real estate activity and/or market area trends.
What are the most important considerations in the valuation of real property?
The value indicated by recent sales of comparable properties, the current cost of reproducing or replacing a building, and the value that the property's net earning power will support are the most important considerations in the valuation of real property.
What is the range of services appraisers provide?
In addition to residential or commercial appraisals—and depending upon an appraiser's designation and qualifications— he or she may be able to assist with the following:
|
