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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 values. The best supported value though 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 one to three approaches to determining a property's value: a cost approach, a sales comparison approach, and the 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 difference between an appraisal by an appraiser vs. a value by say a realtor or Zillow is that the appraiser has had extensive and specific training to adjust for differences between comparable properties and the subject to more accurately portray the subject properties value.
For example, if the comparable property has feature the subject lacks, the appraiser may deduct the value of that item from the sales price of that comparable. If the subject property has an extra feature the comparable lacks, the appraiser might add a certain amount to the comparable property. This is where the advanced training and education of obtaining the MAI designation through the Appraisal Institute matters. The derivation of the adjustments and the process to support them is established protocol so adjustments aren't just pulled out of thin air.
In the case of income producing properties - rental houses, shopping centers, industrial buildings, etc - the appraiser will consider the amount of income the property produces is used to arrive at its current value.
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.