WHAT IS A REAL ESTATE APPRAISAL? I am sure all of you have your own answers to that question. Throughout my 36 years of experience in residential appraising, I have come to realize that many people do not know what we appraisers do. Let me attempt to clarify this as well as some other basic questions for you.
To Appraise real estate is to estimate its market value. ESTIMATE is the key word. Market value is what appraisers attempt to estimate, but not determine. In order to appraise real estate, we employ three approaches to value.
The first is called MARKET APPROACH. In market approach, at least three recent sales within the subject neighborhood, preferably with similar characteristics, are compared against the subject property. Adjustments of the comparables are then made for all differences in characteristics with the subject.
The second approach is called COST APPROACH. The first step here is to estimate the cost of a similar parcel of land. The cost to build a similar building is added to the land value and depreciation is subtracted.
The third and least important approach for residential property is called the INCOME APPROACH, where income producing potential of the subject property is compared with similar rental properties that have recently sold. Finally, the three approaches to value are reanalyzed for their strengths and weakness, and a conclusion is made on the estimate of market value.