What is an appraisal?
If you have not read our “What is an Appraisal” page, an appraisal is a thought process leading to an opinion of value. This opinion or estimate is arrived at through a formal process that typically uses the three ”common approaches to value”. They are:
- Cost Approach – which is what it would cost to replace the improvements, less physical deterioration and other factors, plus the land value.
- Sales Comparison Approach – which involves making a comparison to other similar, nearby properties which have recently sold. The Sales Comparison Approach is normally the most accurate and best indicator of value for a residential property.
- Income Approach, which is of most importance in appraising income producing properties – it involves estimating what an investor would pay based on the income produced by the property.