Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
Full Definition
A real estate appraisal is a professional, unbiased opinion of a property's market value prepared by a licensed or certified appraiser. Appraisers use three approaches to value: the Sales Comparison Approach (comparing similar recently sold properties, called 'comps'), the Cost Approach (estimating the cost to rebuild plus land value, minus depreciation — used for new construction and unique properties), and the Income Approach (based on NOI and cap rate — used for income-producing properties). Appraisals are required by lenders to ensure the property supports the loan amount. The appraisal report (typically a URAR — Uniform Residential Appraisal Report) is ordered by the lender and belongs to the lender, though the borrower pays for it.
Real-World Example
A buyer agrees to pay $450,000 for a home, but the lender's appraiser values it at $430,000. The lender will only lend based on the $430,000 appraised value — the buyer must cover the $20,000 gap or renegotiate.
How Appraisal Appears on the Real Estate Exam
Common question types, tested concepts, and what to watch out for
Know the three approaches to value and when each is used. Appraisers estimate value — only the market sets price. An appraisal is not the same as a home inspection.
Related Terms
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