Appraisal Methods

• Three methods are used to estimate the value of property: comparison approach, cost approach and income approach. As its name implies, the comparison approach compares the property to similar properties in the area that have sold recently. If enough comparable properties are available, this is the approach most often used in residential real estate transactions.
  
  The cost approach determines what it would cost to replace the property and then subtracts depreciation. This result is then added to the market value of the land to get the appraised value. This approach is typically used for public buildings, because comparable properties are difficult to find. The income approach, which is used mostly for rental and commercial properties, values properties based on their potential for generating income.
  
  

Inspection

• The process is similar for each approach, starting with an on-site inspection of the interior and exterior of the property. The appraiser notes such details as the size of the living area and the lot, the condition and quality of the construction of all structures, the number of bedrooms and bathrooms, and the floor plan. He also will note if there's central air-conditioning or any recent renovations as well as the presence of any extras that would make the property more valuable, such as a pool, fireplaces or a deck.
  
  

Neighborhood

• Typically, the appraiser will be familiar with the area, but she still will make sure to note any amenities nearby, such as a golf course or a park, as well as anything that might be considered a detriment to area homeowners, such as commercial properties or a busy highway.
  
  

Data

• The appraiser will research recent sales in the area and confirm the tax records and zoning classification for the property. This is done through public records, real estate services and publications, and possibly such experts as builders or real estate lawyers. From this data, a "highest and best use" analysis is made. This is the use that will result in the maximum value of the property provided that use is physically, financially and legally possible.
  
  

Report

• The appraiser analyzes all the data collected and applies at least one of the approaches to determine the appraisal value. If more than one approach is used, the appraiser reconciles the results, giving most consideration to the approach that is best suited to the property in question. The final value and the accompanying report are reviewed by a senior appraiser; an outside expert may be brought in to review them as well. After any corrections or revisions are made, the report is printed and bound and presented to the client.