what is an appraisal and how does it differ from a sales agent's
opinion of value? Simply, an appraisal is an opinion of value
performed by an individual acting as an appraiser. What
differentiates an appraiser's opinion of value and a sales agent's
opinion is objectivity and impartiality. An appraiser forms an
opinion of value that is unbiased and without accommodation of
personal interest. An appraiser observes the highest standards
of professional ethics and competence in assuring the assignment
results are credible and not misleading.
Appraisers provide services well beyond simply
forming an opinion of value. Please contact
us and we would be happy to discuss your needs and how we may be
In performing an appraisal, there are three
standard approaches; the sales comparison approach, the cost
approach and the income approach. The approach used depends on
the property type, available data and the scope of work needed to
provide credible results.
The sales comparison approach is a method where
comparable properties, that are similar to the property being
appraised (the subject property), are used as a reference point to
support an opinion of value for the subject. Differences
between the comparables and the subject, that impact value,
are identified and adjusted with the result being an indication of
the value of the subject property. The accuracy of this
approach lies in the selection of truly similar comparables and
supported adjustments. This approach is applicable to all
property types when there is sufficient sales data available.
The cost approach is a method where the cost to
rebuild the subject property is used as a reference point.
First, the appraiser estimates the value of the land as if it were
vacant. Next, the cost to rebuild or replace the improvements
is estimated. Any depreciation the improvement may have
incurred is deducted from the estimated cost new. The
depreciated value of the improvement is then added to the value of
the land to estimate the value of the whole property. The
accuracy of this approach is based on the availability of good data
regarding land values, cost and depreciation. The cost
approach tends to lose accuracy as the improvement ages. The
cost approach is typically most applicable to new constructions,
properties with significant updating and special use properties.
The income approach is a method where the future
financial benefits of owning an income producing property are
measured and discounted into a present value of the property.
The approach is used on properties that are purchased for income
production. The accuracy of the approach is predicated on
accurate information such as rents, expenses, rates of return and