Real estate appraisal is the practice of developing an opinion of value of real property. It is presumed that no two properties are exactly alike, and that all properties differ from each other in their location, which is one of the most important determinants of their value. Real estate appraisals are generally performed by a licensed or state certified appraiser.
Typically, there are three (3) approaches to value, to wit: the cost approach, the sales comparison approach, and the income capitalization approach. With respect to residential appraisals, all three forms are identified in a standardized form known as the Uniform Residential Appraisal Report. More complex appraisals are usually reported in a narrative appraisal report.
There are several types and definitions of value sought by a real estate appraisal. Some of the most common are:
• Market Value - the price at which a property should exchange on the date of valuation between an educated buyer and a reasonably motivated seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without undue influence.
• Value-in-use - The net present value (NPV) of a cash flow that an asset generates for a specific owner under a specific use. Value-in-use is the value to one particular user, and may be above or below the market value of a property.
• Investment value - is the value to one particular investor, and is usually higher than the market value of a property.
• Insurable value - is the value of real property covered by an insurance policy. Generally it does not include the site value.
• Liquidation value - may be analyzed as either a forced liquidation or an orderly liquidation and is a commonly sought standard of value in bankruptcy proceedings. It assumes a seller who is compelled to sell after an exposure period which is less than the market-normal time frame.
Price versus value
It is important to distinguish between Market Value and Price. A price obtained for a specific property under a specific transaction may or may not represent that property's market value: special considerations may have been present, such as a special relationship between the buyer and the seller, or else the transaction may have been part of a larger set of transactions in which the parties had engaged. In essence, price does not always equal market value.
State certified or licensed appraisers must conform to the Uniform Standards of Professional Appraisal Practice (USPAP). Thus, the definition of value used in an appraisal or CMA analysis and report is a set of assumptions about the market in which the subject property may transact. It becomes the basis for selecting comparable data for use in the analysis. These assumptions will vary from definition to definition but generally fall into three groups of methodologies for determining value - the cost approach, the sales comparison approach, and the income approach.
Mario D'Artagnan is a Broker Associate at Rossman Realty Group, Inc. in Cape Coral, Florida. Mario is a former real estate instructor, having taught pre and post licensure courses along with residential real estate appraisal. For comments or questions, please contact Mario at:mariodartagnan1953@gmail.com, or visit his website at: [http://www.mariodartagnan.com].
Article Source: http://EzineArticles.com/expert/Mario_D'Artagnan/1585633
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