Obtaining a loan is the most common reason for ordering an Appraisal, however there are other reasons to get one:

• Contesting high property taxes
• Establishing the replacement cost for insurance purposes
• Divorce settlement
• Estate settlement
• Negotiating tool in real estate transactions
• Determining a reasonable price when selling real estate
• Protecting your rights in an eminent domain case
• A government agency requirement
• A lawsuit

There are 3 common approaches, or Appraisal Methods, used by Appraisers to establish property value. After thorough exercise of all 3, a final value estimate is correlated. When evaluating single-family, owner-occupied properties, the Sales Comparison Approach is heavily weighted by an Appraiser.

1. Cost Approach – A formula is used to obtain the property value: Land value (vacant) added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation the building suffers in comparison with a new building.
   
2. Sales Comparison Approach – The Appraiser identifies 3 to 4 comparable comps, recently sold properties in the neighborhood, ideally, sold in the previous 6 months and within ½ mile of the subject property. A comparison is done between the recently sold properties and the subject property including square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition.
   

    

3. Income Approach – The potential net income of the property is capitalized to arrive at a property value. Capitalization is the process of converting a future income stream into a present value. This approach is suited to income-providing properties and is used in conjunction with other valuation methods.

The property seller sets the price, especially for residential property, not the Appraiser. Sellers usually don’t order an appraisal because they want to obtain the highest price for their home and therefore don’t want to be bound by the Appraiser’s assessment.

The real estate agent receives a percentage of the price as compensation and often represents the seller in the transaction and assists them in setting the sale price. They perform a Comparative Market Analysis (CMA), which real estate agents in most states are allowed to perform without an Appraiser’s License or Certification. The CMA is vital to the agent’s preparation for a listing examining recent property sales in the neighborhood to arrive at a listing price. Typically the agent will suggest a price to the seller based on the CMA however the seller may choose to list their property for a higher price.

It’s to your advantage to help the Appraiser perform the assessment by providing additional information:

• What is the purpose for the appraisal?
• Is the property listed for sale, and if so, for what price and with whom?
• Is there a mortgage? And if so, with whom, when placed, for how much and what type (FHA, VA, etc.), at what interest rate, or other type of financing?
• Are any personal properties or appliances included in the property?
• With an income-producing property, what is the income breakdown and expenses for the last year or two? A copy of the lease may be required.
• Provide a copy of the deed, survey, purchase agreement, or additional property papers.
• Provide a copy of the current real estate tax bill, statement of special assessments, or balance owed on anything, i.e. sewer, water, etc.