Real Estate Appraisals

Real estate appraisal, also called property valuation or land valuation, is the process of finding the value of real estate property. Usually, people are trying to find out the market value of the property. Appraisal is necessary because real estate does not change hands as often as some commodities, like stocks and bonds, so the market value can change drastically between one sale and the next. Also, each piece of real estate is different, whereas one piece of stock from the same company is worth the same as the next, so individual assessment for real estate value is necessary.

Some places do not require appraisal experts to have a license or certification in order to appraise property. Most places, however, require a certified or licensed appraiser to find the value of properties. These appraisers are also called land valuers or surveyors. When an appraisal is made based on market value of the property, a measure called the highest and best use (HBU) also must be calculated for the property. This shows the method used for determining the highest possible value of the property. This means that the appraiser needs to determine the reasonable probable, legal, use of the property that will give the highest value. This use must be physically possible, and also financially possible, for each property.

Most reports of appraisals are presented on a standardized document, which is then legally recorded. Types of values vary, with the most popular being the market value. The market value is determined by finding the price at which a property would sell in a fair, open market such as an auction setting. This value assumes that both the buyer and seller are relatively educated about market conditions and that there is a fair transaction with no outside influences. The value is accurate on the day that the property was appraised, and may change with no notice as market conditions alter.

Other types of value include value-in-use, insurable value, investment value, and liquidation value. Value-in-use is the value of cash flow that a property is generating for its owner based on current use. Insurable value is the value of the property that is covered under an insurance policy. Investment value is the value to a given investor, which usually is higher than market value and assumes that the investor has some special reason for wanting a particular piece of property. Liquidation value is the value that can be attained through bankruptcy proceedings and is usually significantly less than market value.