What Is A Real Estate Appraisal?

If you are new in the real estate business, buying or even selling your first home, you will run into what is called a real estate appraisal.

A real estate appraisal by definition is an opinion of value given for a commercial or residential material goods and necessary in many real estate transactions. An appraisal helps establish the material goods’s value. The lender will require an appraisal for the wellbeing of a loan to make sure that the material goods sells for at least the quantity of money it is lending in case you default on the loan.

Now there is what is called a CMA, comparative market analysis – something real estate agents use to determine a realistic asking price. This is different than an appraisal but is often close to appraisal price. An appraisers report requires a professional to come into your home and examine everything with three main approaches.

The first is the Cost Approach. A Cost Approach is the consideration of what the real replacement cost of the land and material goods on it would be. Using the cost to replace the home and its improvements, less depreciation, plus the value of the land, the appraiser makes a determination of the material goods’s value. 



Then there is the Sales Evaluation Approach. The appraiser looks at other homes sold in the area similar to the house being appraised and makes comparisons. The price these comparables were sold at are reviewed and compiled to make a comparative value. This is mot only the most widely used form of appraisal, it is also considered to be the most right form of appraising the value of a residential material goods.


If the material goods being appraised is an income material goods, such as a rental, then there is the Income Approach. This approach to value considers the quantity that an investor might pay for the material goods in order to judge its value.

Once all of this information is gathered it is compiled into a formal report called the appraisal.

On the report, the appraiser must state the proposed use of the appraisal report. The purpose of the assignment and the scope of work used to complete it must also be on the report. There must be an effective date of the appraiser’s opinion of value built-in also.


On this report are also all characteristics that are relevant to the value of the material goods. This includes any easements, encroachments, covenants, restrictions or other similar items that are known at the time of the appraisal. Any division of interest on the material goods must also be on the report. The report can also state any items that could be harmful to the material goods’s value such as poor access to the material goods or seriously flawed characteristics such as a crumbling foundation.

An appraisal is not the same as a home inspection. An appraiser does not test appliances, look at the roof or do any other typical tasks an inspector would.

An appraisal is vital though in regards to the loan process. Many final loan commitments often hinge on a satisfactory appraisal. If a material goods appraises lower than the sales price, the loan might be declined. But don’t panic, there are other steps that can be took if an appraisal comes in low to make a loan work.

Becoming familiar with the appraisal process is helpful to anyone who plans to ever buy or sell a home.