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| Summation
Step 7 - Appraisal Basics
An appraisal of
real estate is the valuation of the rights of ownership. The appraiser must
define the rights to be appraised. The appraiser does not create value, the
appraiser interprets the market to arrive at a value estimate. As the appraiser
compiles data pertinent to a report, consideration must be given to the site and
amenities as well as the physical condition of the property. Considerable
research and collection of data must be completed prior to the appraiser
arriving at a final opinion of value.
Using three
common approaches, which are all derived from the market, derives the opinion,
or estimate of value. The first approach to value is the COST APPROACH.
This method derives what it would cost to replace the existing improvements as
of the date of the appraisal, less any physical deterioration, functional
obsolescence and economic obsolescence. The second method is the COMPARISON
APPROACH, which uses other "bench mark" properties (comps) of
similar size, quality and location that have recently sold to determine value.
The INCOME APPROACH is used in the appraisal of rental properties and has
little use in the valuation of single family dwellings. This approach provides
an objective estimate of what a prudent investor would pay based on the net
income the property produces.
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