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Frequently Asked Questions

Real Estate Appraisal

What qualifies someone to be a real estate appraiser?

Many states require all real estate appraisers to be, at a miniumum, state licensed or state certifed and have fulfilled rigourous education and experience requirements and must adhere to strick industry standards and a professional code of ethics as promulgated by the Appraisal Foundation.

Where does an appraiser get the information needed to complete an appraisal?

The appraiser gets his or her information from a wide variety of sources, including the local Multiple Listing Service, local tax assessors records, local real estate professionals, county courthouse records, private public record data vendors, interviews with sellers and buyers, appraisal data co-operatives and his or her own personal knowledge or office files from previous appraisals. The quality and reliability of each piece of information is considered by the appraiser.

What is the difference between an appraisal and a brokers market analysis or price opinion?

A certified appraisal is a formal, impartial estimate or opinion of value, usually written, of an adequately discribed property, as of a specific date, and supported by the presentation and analysis of relevant data. It is prepared as a result of a retainer, for reliance by identified parites, and for which the appraiser accepts responsibility. Only a state certified appraiser can provide a certified appraisal.

A comparative market analysis or brokers price opinion is an informal estimate of market value, based on comparable sales in the neighborhood, performed by a real estate agent or broker.

What is the market approach?

The market or direct sales comparison approach to an estimate of value is a process of comparing market data, that is, prices paid for similar properties, prices asked by owners, and offers make by prospective purchasers or tenants willing to buy or lease. Typically a comparison grid is used and adjustments are made to each of the comparable sales used for major differences between the comparable and the subject property for such items as location, gross living or building area, lot size, condition/effective age, market conditions, degree of remodeling, construction quality and significant amenities, ie: fireplace, jacuzzi, in ground pool, garage, deck, patio, porch and central air conditioning, etc. In the market approach, the appraiser attempts to both gauge and reflect the anticipated reaction by a typical purchaser to the subject property.

What is a comparable sale?

A comparable sale is a property, that is similar to the subject property in most respects, is located in the similar (nearby) location, and has sold recently at arms length. The selection of comparable sales is in most residential appraisals, the single most important determining factor in establishing value. It is the appraisers responsibility to adequately research the local real estate market and determine which comparable sales best represent the value characteristics of the subject property.

What is an arms length transaction?

An arms length transaction is one in which both seller and purchaser act completely independently of each other and have no connection or relationship to each other.

What is Market Value?

Market value or fair market value is the most probably price that a property should bring (will sell for) in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeabley and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of the title from seller to buyer under conditions whereby; 1) buyer and seller are typically motivated; 2) both parties are well informed or well advised; 3) a reasonable time is allowed for exposure to the open market; 4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

What is the Cost Approach?

The cost approach combines as estimate of land value with an estimate of depreciated reproduction or replacemnt cost of the improvements. The principle of substitution is the basis of the cost approach, in that no rational person will pay more for a property than the amount for which he can obtain, by purchase of a site and construction of a building, with undue delay, a property of equal desirability and utility.

What is the Income Approach?

The income approach is based on an estimate of net income from the operation of an income producing property and the selection of the property capitalization rate from market indications of similar properties. The principle of anticipation is the basis of the income approach and affirms that value is created by the expectation of benefits to be derived from possession, operation and/or capital gains at resale.

What does highest and best use mean?

Typically, highest and best use means the use or utilization that provides the most profitable return on investment. It is that use, selected from reasonably probable and legal alternative uses, which are found to be physically possible, appropriately supported and financially feasible to result in the highest possible land value.

Can an appraiser simply readdress an appraisal undertaken for one client for another client?

No. An appraiser cannot simply readdress an appraisal for another client.



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