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An appraisal is an unbiased estimate of what a buyer might expect to pay - or a seller might expect to receive - for a parcel of real estate. Many people turn to real estate agents, brokers, or online services for valuation information, but the best value will be provided by a qualified appraiser who considers details others ignore.
An appraiser's duty is to inspect the property being appraised to ascertain the true status of that property.
Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income approach.
The cost approach is the easiest to understand. The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised.
Appraisers also rely on the sales comparison approach to develop an estimate of value. Recent sales in the vicinity are considered with the most ''comparable'' properties chosen as the sales. The sales prices of these properties are used as a basis to begin the sales comparison approach.
The appraiser adjusts the comparable properties to more accurately portray the subject property. For example, if the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home. If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.
In the case of income producing properties - rental houses for example - the appraiser will often use a third approach to valuing the property. In this case, the amount of income the property produces is used to arrive at the current value of those revenues over the foreseeable future.
Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property.
It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or ''bidding wars'' that may adjust the final price up or down. The appraised value represents the value after typical marketing and exposure and negotiations are completed. It should not be the starting point for a listing.