What is an appraisal A home purchase is one of the largest, single investment most people will ever make. Whether it's a primary home, a second vacation home or an investment, the purchase of real property is a complex financial transaction that requires multiple parties. Most of the people involved are very familiar. The Realtor is the most common face of the transaction. The mortgage company provides the financial funding necessary for the transaction. The title company ensures that all aspects of the transaction are completed and that a clear title passes from the seller to the buyer. So who makes sure the value of the property is in line with the amount being paid? There are too many people exposed in the real estate process to let such a transaction proceed without ensuring that the value of the property is commensurate with the amount being paid. This is where the appraisal comes in. An appraisal is an unbiased estimate of what a buyer might expect to pay - or a seller receives - for a parcel of real estate, where both buyer and seller are informed parties. To be an informed party, most people turn to a licensed, certified, professional appraiser to provide them with the most accurate estimate of the true value of their property. The Appraisal Inspection It all starts with the inspection. An appraiser's is to inspect the property being appraised to ascertain the true status of that property. They must actually see features, such as the bedrooms, bathrooms, the location, and, to ensure that they really exist and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of the property, ensuring the square footage and the layout of the property. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house. Once the site has been inspected, an appraiser uses a number of approaches as necessary to determin the value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income approach can all be used. Cost Approach The cost approach is the easiest to understand. The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. Why would you pay more for an existing property if you could spend less and build a brand new home instead? While there may be mitigating factors, such as location and amenities, these are usually not reflected in the cost approach. Sales Comparison Appraisers also need to rely on the sales comparison approach to value. Appraisers get to know the neighborhoods in which they work. They understand the value of features in that area. They know the traffic patterns, the school zones, the busy throughways; and they use this information to determine which attributes of a property will make a difference in the value. Then, the appraiser researches recent sales in the vicinity and finds properties which are ''comparable'' to the subject being appraised. The sales prices of these properties are used as a basis to begin the sales comparison approach. Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), the appraiser adjusts the comparable properties to more accurately portray the subject property. For example, if the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home. If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property. In the case of income producing properties - rental houses for example - the appraiser may use a third approach to valuing the property. In this case, the amount of income the property produces is used to arrive at the current value of those revenues over the foreseeable future. Reconciliation Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or ''bidding wars'' that may adjust the final price up or down. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is: an appraiser will help you get the most accurate property value, so you can make the most informed real estate decisions.   Here in brief is an explanation of the types of reports that are available to you: Fannie Mae 2055 Short Form Report 2055 Limited Residential Appraisal and Summary Report  It has been accepted for use where the FNMA 1004 Report is not necessary. It can be used for some tax appeals, matrimonial, estate bail bonds or to establish fair market value for sellers or purchasers It does not fit every use but is the less expensive form of an appraisal and you need to check with the party you will be providing the form to, to make sure it will fit the required needs. The short form Residential Appraisal Report includes  brief neighborhood analysis; brief description of the site; brief description of the improvements; direct sales approach utilizing comparable sales on a comparison grid; reconciliation; definition of market value; certification;  exterior photos of the subject property; exterior photos of all comparable sales used; location map and opinion of value Uniform Residential Appraisal Report The Form 1004 Uniform Residential Appraisal Report there are two versions one for lending purposes and one for non lending purposes. Most commonly used appraisal form. It is designed for single-family and owner occupied two family owner occupied or small income residential property. This is the form (in the lender version) used by lenders and other investors for mortgages and refinancing. It can be used for some tax appeals, matrimonial, estate bail bonds or to establish fair market value for sellers or purchasers It does not fit every use but is the less expensive form of an appraisal and you need to check with the party you will be providing the form to, to make sure it will fit the required needs. There will be an interior and exterior inspection which can take about 15 minutes to one hour+ depending on the size of the house. A Uniform Residential Appraisal Report includes a neighborhood analysis; description of the site; description of the improvements; cost approach; direct sales comparison utilizing comparable sales on the comparison grid; reconciliation; definition of market value; interior and exterior photos of the subject property; exterior photos of all comparable sales used; location map; interior sketch of the property showing rooms. This report is more expensive but is much more comprehensive both in research and narrative information entered into the reporting. . Condominium Report The Form 1073, Individual Condominium Unit Appraisal Report is for condominiums.  It is used by lenders for purchases and refinancing purposes. It can also be used for condo tax appeals, matrimonial or situations involving a condominium. . There will be an interior and exterior inspection which can take about 15 minutes to one hour+ depending on the size of the house. This report is very similar in cost and content to the 1004 report from above except it is specifically used for condos. Small Residential Income Property Appraisal Report The Form 1025, Small Residential Income Property Appraisal Report is for two to four family income properties. It is used by lenders for purchases and refinancing purposes There will be an interior and exterior inspection which can take about 15 minutes to one hour+ depending on the size of the house. It can be used for some tax appeals, matrimonial, estate bail bonds or to establish fair market value for sellers or purchasers It does not fit every use but is the less expensive form of an appraisal and you need to check with the party you will be providing the form to, to make sure it will fit the required needs The report includes a neighborhood analysis; description of the site; description of the improvements; rental income analysis; cost approach; income approach; direct sales comparison approach; reconciliation; operating income statement if required and ordered, interior and exterior photos of the subject property; exterior photos of all comparable sales; location map; sketch of subject property layout; Operating income and rent schedules can be added to the report at separate charges based on your need or the lenders needs. Our "short form Commercial/Industrial Appraisal Report" typically consists of a letter of transmittal; brief neighborhood analysis; brief description of the site; brief description of the improvements; direct sales comparison approach; reconciliation; definition of market value; certification; contingent & limiting conditions; exterior photos of the subject property; exterior photos of all comparable sales used; comparable sales location map and qualifications of the appraiser and reviewer.