What Is An Appraisal?

An appraisal is a professional appraiser's opinion of value. The preparation of an appraisal involves research into appropriate market areas; the assembly and analysis of information pertinent to a property; and the knowledge, experience and professional judgment of the appraiser. Much of the private, corporate and public wealth of the world consists of real estate. The magnitude of this fundamental resource creates a need for informed appraisals to support decisions pertaining to the use and disposition of real estate and the rights inherent in ownership. An appraisal answers one or more specific questions about a real estate parcel’s value, marketability, usefulness or suitability.

Professional real estate appraisers perform a useful function in society and offer a variety of services to their clients. They develop opinions of several types of property value and assist in various decisions about real estate. Standards for the appraisal profession are set forth in the Uniform Standards of Professional Appraisal Practice (USPAP) developed by the Appraisal Standards Board of The Appraisal Foundation. USPAP specifies the procedures to be followed in developing and communicating an appraisal and the ethical rules for appraisal practice. As defined in USPAP, an appraisal is the act or process of developing an opinion of value. The valuation process is a systematic procedure the appraiser follows to answer a client’s question about real property value.

The most common type of appraisal assignment is the development of an opinion of market value. However, because of their specialized training and experience, appraisers can provide a wide range of additional appraisal services—from investment consultation to advice on various business as well as personal financial decisions.

The role of the appraiser is to provide objective, impartial and unbiased opinions about the value of real property—providing assistance to those who own, manage, sell, invest in and/or lend money on the security of real estate. The analysis of social, economic, governmental and environmental forces provides an understanding of the dynamics of change and helps identify value trends. Against this background, the appraiser investigates the characteristics of the subject property that might impact the property’s value. The appraiser also investigates the nature of the market for that property, competitive properties, and the buyers and sellers who constitute the market for that property type. The principles of supply and demand, substitution, balance and externalities help explain shifts in value.

Four independent economic factors—utility, scarcity, desire, and effective purchasing power— must be present to create value in a particular item or collection of items. Professional appraisal standards specifically require the study of all value influences. Change and anticipation are fundamental in this analysis, and appraisers apply these principles and related concepts that influence value in their analysis.

At minimum, all states require appraisers to be state licensed or certified in order to provide appraisals to federally regulated lenders. However, State of Washington does not require an appraiser trainee to be licensed or certified for the first 2 years of apprenticeship.

Most appraisals are reported in writing, although in certain circumstances, an appraiser may provide an oral appraisal. A written appraisal report generally consists of: a description of the property and its locale; an analysis of the "highest and best use" of the property; an analysis of sales of comparable properties "as near the subject property as possible"; and information regarding current real estate activity and/or market area trends.

The value indicated by recent sales of comparable properties, the current cost of reproducing or replacing a building, and the value that the property's net earning power will support are the most important considerations in the valuation of real property.

*information deemed reliable and used in part from the Appraisal Institute.