FAQ
- 1. Are real estate appraisals really necessary?
- 2. What qualifies someone to be a real estate appraiser?
- 3. How long does an appraisal take?
- 4. Appraisal VS. Engineer or Whole House Inspection?
- 5. What constitutes a typical appraisal?
- 6. What is the Direct Comparison Approach?
- 7. What is a comparable sale?
- 8. What is Market Value?
- 9. What is the Cost Approach?
- 10.What is the income approach?
- 11.What does highest & best use mean?
Are real estate appraisals really necessary? 
The Importance Of A Professional Real Estate Appraisal
Because much private, corporate, and public wealth lies in real estate, the determination of its value is essential to the economic well-being of society. It is the job of the professional appraiser to determine these values by gathering, analyzing, and applying information pertinent to a property.
Unquestionably, the professional opinion of the appraiser, backed by extensive training and knowledge, influences the decisions of people who own, manage, sell, purchase, invest in, and lend money on the security of real estate. And because the appraiser is trained to be an impartial third party in the lending process, this professional serves as a vital "check in the system," protecting real estate buyers from overpaying for property as well as lenders from over lending to buyers.
What qualifies someone to be a real estate appraiser?
There are two recongized real estate appraisal institutes: AIC (Appraisal Institute of Canada) and CNAREA (Canadian National Association of Real Estate Appraisers) These institutes require all real estate appraisers to fulfil rigorous education and experience requirements and must adhere to strict industry standards and a professional code of ethics as promulgated by the Appraisal Foundation. To see the specific requirements click here. [ http://www.aicanada.ca ] [ http://www.cnarea.ca ]
How long does an appraisal take?
The physical inspection of the real property being appraised can take from approximately fifteen minutes to several hours, depending upon the size and complexity involved.
After the initial inspection of the property the appraiser spends time touring through the neighborhood or area. The purpose of this tour is to search for comparable sales (other properties that are similar to the property being appraised) that have sold within the last year or so. When the field work is finished, the appraiser completes the report at his/her office. The report can consist of a short form report (typically under ten pages) to a long narrative report which can sometimes exceed a hundred pages. A short form report usually takes between three to six hours to complete. A narrative report can take weeks or sometimes even months, depending upon the complexity of the assignment.
Appraisal VS. Engineer or Whole House Inspection?
The appraiser is not a whole house inspector, engineer, architect, electrician, plumber, H.V.A.C. technician or contractor. The appraiser briefly walks through the house to get an idea of the general condition and room count. An appraisal is not a guarantee of condition. The appraiser will ask about any visible problems and those which may not be visible, and will do his/her best to gauge any impact on value attributable to those problems. You are encouraged to seek the advice of experts if you have any questions about the structural or mechanical aspects
What constitutes a typical appraisal?
The appraisal process is an orderly and concise method of reaching an estimate of value. The process has six major steps which include: definition of the problem, preliminary survey and appraisal plan, data collection and analysis, application of the three approaches to value, reconciliation of value indications, final estimate of defined value. This process assists the appraiser in reaching a sound conclusion. The major phase of this process involves the application of the three approaches to value which include the Direct Comparison Approach, the Cost Approach and Income Approach. The three approaches are reconciled and the value via most applicable approach, in the opinion of the appraiser, is selected as the final estimate of value. In most residential appraisals, particularly those of single or two family dwellings, the direct sales comparison or market approach best reflects the actions of buyers and sellers and is the most convincing and defendable approach to value.
What is the Direct Comparison Approach?
The Direct Comparison Approach to an estimate of value is a process of comparing market data, that is, prices paid for similar properties, prices asked by owners, and offers made by prospective purchasers or tenants willing to buy or lease. Typically a comparison grid is used and adjustments are made to each of the comparable sales used for major differences between the comparable and the subject property for such items as location, gross living or building area, lot size, condition/effective age, market conditions, degree of remodeling, construction quality and significant amenities, ie: fireplace, jacuzzi, in ground pool, garage, deck, patio, porch and central air conditioning etc. In the market approach, the appraiser attempts to both gauge and reflect the anticipated reaction by a typical purchaser to the subject property.
What is a comparable sale?
A comparable sale is a property, that is similar to the subject property in most respects, is located in a similar (nearby) location, and has sold recently at arms length. The selection of comparable sales is in most residential appraisals, the single most important determining factor in establishing value. It is the appraisers responsibility to adequately research the local real estate market and determine which comparable sales best represent the value characteristics of the subject property.
What is Market Value?
Market value or fair market value is the most probable price that a property should bring (will sell for) in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised; (3) a reasonable time is allowed for exposure to the open market; (4) payment is made in terms of cash or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
What is the Cost Approach?
The cost approach combines an estimate of land value with an estimate of depreciated reproduction or replacement cost of the improvements. The principle of substitution is the basis of the cost approach, in that no rational person will pay more for a property than the amount for which he can obtain, by purchase of a site and construction of a building, with undue delay, a property of equal desirability and utility.
What is the income approach?
The income approach is based on an estimate of net income from the operation of an income producing property and the selection of the property capitalization rate from market indications of similar properties. The principle of anticipation is the basis of the income approach and affirms that value is created by the expectation of benefits to be derived from possession, operation and/or capital gain at resale.
What does highest & best use mean?
Typically, highest & best use means the use or utilization that provides the most profitable return on investment. It is that use, selected from reasonably probable and legal alternative uses, which are found to be physically possible, appropriately supported and financially feasible to result in the highest possible land value.
