Real Estate Appraisal

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Real Estate Appraisal

Date Added: October 08, 2008 04:28:55 AM
Category: Real Estate Appraisers
Real estate appraisal is the valuation of land or property so as to access the market value of the property. The need for appraisal arises because no two properties have the same features, one may differ in size and other may differ in location. Usually the appraiser requires a license if he/she wants to appraise a property. There are various ways in which the value of the property can be appraised:

Market value: estimated market value of a property is the price of the property which the buyer is willing to sell and the price at which the seller is willing to buy the property.
Value in Use: it is the sum of all the discounted cash flow that a property will generate to one particular user. It is to be noted that the value is specific to one particular user and is usually below the market price of the property.
Investment Value: it refers to the investment value associated with the property for one particular user. This is generally higher than the market price.
Insurable Value: it is real value of the property covered by the insurance policy.
Liquidation Value: it is the value at which the property can be sold or liquidated under present market condition.
It is important that we do not confuse the market value of the property with the price at which the property is brought and sold. The price may depend upon various factors like the relation between the buyer and the seller and the importance of property in the eyes of the buyer. While market value is a subjective valuation of the property, the price is actual value which the buyer is willing to pay.

The appraiser to arrive at the value of the property may use any of the three approaches:

The cost approach: This approach adds the value of the land and the depreciated value of the improvements to arrive at the value of the property. The value of the improvements is referred by the abbreviation RCNLD (replacement cost less depreciation). Replacement cost is nothing but cost incurred to replace the exact replica of the improvements. Improvements in a property can be form of a house, utilities, design, workmanship, etc.

The sales comparison approach: This approach examines the price or the price per unit area of a similar property which is sold in the market. The appraisers analyze the value of the property sold in the market and reduce/add the comparable difference between the property sold and the property to be valued.

The income approach: This approach analyzes the commercial and investment value of the property. This valuation method is generally used to value income generating property, were sufficient data regarding income generated by the property is available. Usually the value of the property is arrived at after capitalizing the future receivables of the property.

Before valuing any property the appraiser must know for what purpose the valuation of the property is undertaken. The scope of work and the period within which the valuation of the property will be arrived at must be clearly defined. It is also the duty of the appraiser to be unbiased when he is valuing the property.
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