What is an Appraisal?
Residential Appraisal Process
A residential appraisal is an impartial, USPAP-compliant analysis of a property’s market value. The process begins with establishing the assignment conditions and Scope of Work. The appraiser then conducts an on-site inspection to verify the home’s physical characteristics, measure for ANSI-compliant Gross Living Area (GLA), document condition and quality, and observe the surrounding neighborhood.
Following the inspection, the appraiser researches market activity, analyzes comparable sales, reviews listings and pending sales, verifies public records, and examines relevant market trends. The applicable approaches to value are developed and reconciled into a final, well-supported opinion of value. A written report is then delivered to the client.
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Three Approaches to Value
1. Sales Comparison Approach
The primary approach for most residential properties. The appraiser compares the subject property to recent, similar sales, applying market-supported adjustments for differences in GLA, condition, quality, site size, design, and market conditions.
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2. Cost Approach
Estimates value by combining land value with the current cost to replace the improvements, less physical, functional, and external depreciation. This approach is most useful for newer construction and properties with minimal depreciation.
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3. Income Approach
Used when the property is capable of producing income. Market rent is estimated using comparable rentals, and a Gross Rent Multiplier or capitalization method is applied to develop an income-based indication of value.
Not typically required for owner-occupied single-family homes but applicable for rental properties and small 2–4 unit residential income properties.
Appraisal vs Home Inspection
An appraisal and a home inspection are two separate services with distinct purposes and methodologies.
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Appraisal
An appraisal is an independent, impartial opinion of market value developed by a state-licensed or certified appraiser. The appraiser verifies the property’s characteristics, measures the home according to applicable standards, analyzes comparable sales and market trends, and applies the appropriate approaches to value.
The focus is on market analysis and value determination.
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Home Inspection
A home inspection is a comprehensive evaluation of the property’s physical condition. The inspector conducts a detailed examination of structural components, mechanical systems, roofing, plumbing, electrical, HVAC, foundation, and other visible elements.
The purpose is to identify deficiencies, safety concerns, or components in need of repair or replacement.
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Key Distinctions
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Purpose:
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Appraisal: Establishes market value.
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Inspection: Evaluates condition and identifies defects.
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Scope:
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Appraisal: Market-focused; property characteristics affect value.
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Inspection: System-by-system physical evaluation.
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Use:
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Appraisal: Required for lending and used for taxation, estates, divorce, PMI removal, and other valuation needs.
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Inspection: Used by buyers/sellers to understand the home’s condition prior to sale.
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Contact Us:
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