Factors of a Professional Real Estate Appraisal

Comparable Sales

A comparable sale is property that is similar to the subject property in most respects. It is located in a nearby location. It has recently sold for a fair market value. The selection of comparable sales is in most residential appraisals and is the single most determining factor in establishing the value. The appraisers responsibility is to fully research the local real estate market and determine which comparable sales which equals the best value characteristics of the subject property.

Market or direct sales comparison approach to value

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 made by prospective buyers or the tenants willing to buy or lease. Typically a comparison grid is used and adjustments are made to each comparable sales used for major differences between the comparable and the subject property for such items as location, remodeling, construction quality and significant amentias, i.e.: fireplace, Jacuzzi, in ground pool, garage, deck, patio, porch and central air-condition etc. In the market approach, the appraiser attempts to both gauge and reflect the anticipated reaction by a typical purchaser to the subject property.

Market Value

Market value is the most probable price that the subject property should bring or sell for in a competitive and open market under all conditions requisite for a fair sale, the buyer and seller, each acting prudently and knowledgeably, 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 title from seller to buyer under conditions whereby:

buyer and seller are typically in agreement;

both parties are well informed of well advised, acting in what they consider, their own best interests.

a reasonable time is allowed for exposure to the open market;

Appraisal Process
The appraisal process is a setting of orderly and concise method of reaching an estimate value. The process has six major steps which include: appraisal plan, preliminary survey, definition of the subject, data collection and analysis, application of three approaches to the value. reconciliation’s of value indications and a final estimate of the defined value. This approach assists the appraiser in reaching a sound conclusion. The major phase of this process involves the application of three approaches to the value which include the ‘Market Data Approach’, ‘Cost Approach’ and the ‘Income Approach’. These three methods are brought together and the value via most applicable approach, in the option of the appraiser, is selected as the final estimate of value. In most residential appraisals, particularly those of single or two family dwellings, the direct sales comparison or market approach best reflects the actions of buyers and sellers and is the most convincing and defendable approach to a good estimate of value.

Income Approach to Value

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 the market indications of similar properties. The principle of anticipation is the basis of income approach and affirms that value is created by the expectation of benefits to be derived from possession, operation and or capital chain at resale.