The Real Estate Appraisal Process

1307 Words Jan 6th, 2018 5 Pages
Most people do not have the funding to purchase a home outright and must rely on financing to purchase their homes. Banks require that a real estate appraisal be conducted to determine what the market value of a property is so they know how much the property is worth as collateral for the loan. Therefore the appraisal serves as the basis for factors such as determining a fair market price, how much collateral a property can offer a lender, or in some cases even how much a property should be able to earn in income in a "best use" scenario. This report will outline the basic steps of evaluating the value of property as well as discuss some of the considerations surrounding the appraisal process in general.

Three Approaches to Value

There are three primary routes to establishing a real estate property values and these methods differ significantly. The most common for residential real estate is the determination of market value or the sales comparison approach. This method utilizes sales data to determine what other similar properties in the local market have sold for. Another method of determining value is through a cost approach which is more typical in new construction. For example, when a contractor builds a new house or structure they might charge for the materials and labor that was used plus some amount of…

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