What exactly is a real estate appraisal? It is simply an opinion, or estimate, of the value of a particular property. A qualified person gives an evaluation of what that piece of real estate is worth. So who is this 'qualified person?? There are two trade organizations, The Appraisal Institute and the National Society of Real Estate Appraisers. Both are held to incredible standards through education requirements, ethical standards, and enforcement procedures, to the point that the system is not flawless, but as accurate as possible.

Lenders require an appraisal by a person recognized by one of these two organizations to approve a new mortgage. Without this, the lender has no proof of the value of the property that they lending for. This would be a dangerous position in the event of foreclosure. The appraisal attempts to justify the price of the property to the lender, and it usually happens after the buyer has made a contract with the seller. If you have noticed 'pending inspection' listed on certain MLS properties, this is the stage that is taking place. Before the lender proceeds, he or she is given the contract price.

There is a standard Uniform Residential Appraisal Report that most residential appraisals appear on. However, reports can be oral, written, narrative, or letter in style. The residential report from meets the requirements of most lenders in primary or secondary markets. The subjects covered in this report are the site, neighborhood, property improvements, interior finish, appliances, equipment, an evaluation that includes the methods of appraisal used, and a market data analysis comparing similar properties in the neighborhood. Attached are photos of the property to provide examples of such things mentioned in the form as well as several views of the property and a map of its location.

From the data collected upon inspection, the appraiser must determine a fair market value for the property, which can be done in one of three methods. The 'cost approach' finds the replacement cost of the land and the building at today's market and building rates, minus depreciation. The' income method' measures the potential income to be made from the property, while the 'price method' compares the selling prices of similar recently sold properties. The appraiser does not have to follow one method strictly, and often there is a combinations of methods used to make a decision.

Remember, an appraisal is only an estimate. Such an examination does not indicate a thorough inspection or guarantee of anything. These estimations are not infallible and are often quite complex, so it is important to take the appraisal for what it is worth and see what can be done with it. It can help you from overpaying for a property, so finding the right experienced inspector is important, and well worth the cost.

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