A real estate appraisal is essentially an appraiser providing his or her client with an opinion of the property’s market value. In other words, what a property should sell for on the open market if the property were put on the market for sale. Appraisals can range is scope (amount of work needed to complete an accurate appraisal) and the amount of detail in the final report. An appraisal can be a very simple opinion of value or it can be quite complex. Also, there could be different values for the same house.
An appraiser has never seen someone’s house but someone asks him or her during a party what his 2-story house might be worth in a certain neighborhood. An appraiser might say many 4 bedroom two story houses in that neighborhood are selling for $275,000 to $300,000.
The same person then asks the appraiser to drive by the house (but he or she doesn’t have to go inside) and give the owner a rough number. The appraiser does and sees the house is larger than most on the block and reports a value of $330,000 to the owner.
The owner is curious, yet disappointed, so he asks the appraiser to do a full interior and exterior inspection of the house. The appraiser does so and finds upgraded quality of construction such as hardwood flooring, cherry kitchen cabinets and a finished basement, none of which was visible from the exterior. The appraiser then concludes a value of $375,000.
Appraisals are opinions of market value, and are based on market data as well as the appraiser’s experience. Appraising is not an exact science and two appraisers can arrive at two different values on the same house at the same time. The only true way to find out what a property is worth is to place the property on the market and see what a buyer pays for the property.
An appraisal is as accurate as the data available to the appraiser. When market data is limited and when there are few sales such as during the cold winter months or in a difficult economy or recession, the appraiser may only have one or two recent sales and maybe sometimes no similar sales at all if the property is unique. The more similar sales an appraiser has the more reliable and supported the value concluded by the appraiser.
An appraisal should be the same value whether it is for a divorce, estate, refinance, purchase, etc. The market value of the property should be what the property should sell for on the open market and should not be worth $50,000 for an estate, $100,000 for a refinance, $75,000 for a divorce, etc. There are times when an appraiser is asked to provide a value different than “market value” but this will be decided by the client and the appraiser.