What is Appraised Value?

Appraised Value Definition

Appraised value is the fair market value of a piece of property as determined by a licensed and qualified appraiser. Through the use of accepted formula, research and inspection of the property, the appraiser will estimate a fair market value of the property.

Appraisal is commonly used in the real estate industry to obtain a value of the property. The appraised value is used for a number of purposes: the local taxing authority will use an appraisal to determine your real estate tax liability, a potential buyer will use it to make an offer, a realtor will use it as a gauge to determine how much to price your property, and a lender will use it to determine how much money may be loaned to you.

An appraiser is a licensed professional, trained and educated in determining the value of real estate.

Methods of Finding Appraised Value

There are several methods of appraising a property. Typically the method used for best determining a properties value is determined by the of the use or property and the requirements from the lending institution.

Comparable Sales Approach

The most common method is the comparable sales approach. In this method, the appraiser will view the property through a physical inspection. The appraiser will note the physical condition of the property, its age the number of rooms, style, amenities and quality of building materials used.

The appraiser will then research the immediate neighborhood to determine whether recent sales were conducted, obtain the purchase price for the recent sales, and compare the properties sold with the property being appraised. The appraiser will then add or deduct value based on the differences between the appraised property and the properties recently sold.

Cost Replacement Approach

In another method, not frequently used for residential property, the appraiser will determine whether the property is residential, commercial, etc. The appraiser will consider the cost to replace or “rebuild” the property through new construction, and deduct the depreciation of the property based upon its age.

Typically the cost replacement approach to calculate the value of a property is used for insurance purposes. In the case of a total loss, the property would have to be rebuilt and that number could be considerably higher than the appraised value using a comparable sales approach.

Income Approach

The income approach is not usually a stand alone appraisal, rather it is used to create a more detailed explanation for the appraised value. Typically used for commercial buildings, the income approach helps assess a properties value based on the income that it generates vs the cost to maintain the building.

Ordering an Appraisal

At First Foundation, we understand that appraisals are often necessary for the residential mortgage process and are used frequently by lenders in determining whether a mortgage can be issued, and if so, for how much.

We take care of ordering the appraisals from the approved list of appraisers provided by our lenders and liaison with the appraisers to ensure they are completed properly and in a timely manner.

Related Definitions

If you are interested in learning more about how to figure out the appraised value of a property, please feel free to contact us anytime!

Last updated Nov 29, 2018