The Know Hows of Real Estate Appraisal

Real estate appraisal is a service of developing an opinion of value based on highest and best use of real property. The highest and best use implies that the use produces the highest value for the land as when it is vacant. The use of the land is based on 4 different elements: physically possible, appropriate, legal and economically feasible.

Apart from the highest and best use of land, important factors such as the market value, condemnation value, quick sale value etc. must be included in the appraisal. At the time of mortgage valuation of improved residential property, this value should be reported on a standard form called Uniform Residential Appraisal Report.

In USA, the minimum appraisal standards and appraiser qualifications are defined by The Appraisal Foundation which is chartered by Congress. One of its boards Åµhe Appraisal Standards Board (ASB) periodically publishes the Uniform Standards of Professional Appraisal Practices (USPAP). It provides the minimum development and reporting standards which an appraisal report should meet. The Foundation is also responsible for setting the minimum qualification and eligibility criteria for appraiser licensure or certification through its board – Åµhe Appraisal Qualifications Board (AQB)?

In addition to state certification, an appraiser can earn professional designations from the several professional organizations. Some of these are the American Society of Appraisers (ASA), the American Society of Farm Managers and Rural Appraisers, the Appraisal Institute (AI) etc. The most valuable designation is the MAI (Member, Appraisal Institute).

It is the fiduciary responsibility of an appraiser to conduct an appraisal for a specific client. Generally, a residential appraiser accepts orders from lending institutions and gets the payment after the settlement or closing of the loan is over. In most cases, the homeowner or buyer pays for the services of the appraiser either directly or the total fees are added into the settlement costs.

There are different types of value required for a real estate appraisal. Some of them are:

Market Value: Market value is the estimated amount of the property for which it can be exchanged on the date of valuation between a buyer and seller. There are 3 different approaches to determine the fair market value of the property Cost Approach, Sales Comparison Approach, and Income Approach. The appraiser has to decide which one of the above approaches is most suitable. Based upon that approach, the appraiser then develops an appraisal report.
Value-in-use: The value of the property to one of the particular users, which may be higher or lower than the market value of the property.
Investment Value: The value of the property to one of the particular investors, which may be higher or lower than the market value of the property.
Insurable Value: The value of the property covered by an insurance policy.

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