An Appraisal is an opinion of value of the act of process of estimating value. Appraisers do NOT set value, they ONLY estimate and report value based on the interpretation of data derived from the Market, which when properly analyzed reflects value. This opinion or estimate of value is derived by using the three primary Approaches To Value, which are:
The Cost Approach: Is the estimate of value based on what it would cost to replace or reproduce the improvements as of the date of the Appraisals, less Physical Depreciation, Functional and Economic Obsolescence. The remainder is added to the estimate of the Site Value (As-If Vacant).
The Sales Comparison Approach: Is the estimate of the value based on Direct market Sales of similar properties that have recently sold, comparing similar features and adjusting for differences.
The Income Approach: Is the estimate of value based on the current or likely income stream produced by the property projected over a future time period. The Approach is considered the most objective estimate of value, as it is what a prudent investor would pay based on the net income the property produces.
Once the Purpose of the Appraisal Assignment had been established, a thorough analysis of all general and specific data gathered and compiled from the market, considering the site value, amenities as well as the physical condition of the property compared between each comparable and the subject, is then reconciled into a final opinion of value.