The Inspection

So what goes into a real estate appraisal? It all starts with the inspection. An appraiser’s duty is to inspect the property being appraised to ascertain the true status of that property. He or she must actually see features, such as the number of bedrooms, bathrooms, the location, and so on, 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 proper square footage and conveying 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 two or three approaches to determining the value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income approach.

Three Approaches to Value

There are three ways to determine the value of anything, and each plays a part in property appraisal.

Sales Comparison Approach

The most widely-used and accepted in residential practice is the sales comparison approach. This approach bases its opinion of value on what similar properties in the vicinity have sold for recently, with appropriate adjustments for time, acreage, living area, amenities and so on.  It is these adjustments where the expertise of the professional appraiser becomes necessary — no computer can tell you how much or little to mark up for a fireplace without knowing the neighborhood or even talking to Realtors and recent buyers in the area about how important that amenity is in that particular location.

Cost Approach

The most widely-used and accepted in residential practice is the sales comparison approach. This approach bases its opinion of value on what similar properties in the vicinity have sold for recently, with appropriate adjustments for time, acreage, living area, amenities and so on.  It is these adjustments where the expertise of the professional appraiser becomes necessary — no computer can tell you how much or little to mark up for a fireplace without knowing the neighborhood or even talking to Realtors and recent buyers in the area about how important that amenity is in that particular location.

Income Approach

The third approach to value is called the income approach. Some properties generate income for their owners — the most obvious examples being rental properties such as apartment buildings, non owner-occupied houses and duplexes and the like. The rental income an owner might reasonably expect from a property is part of its value. For a purely owner-occupied residential property, this may not be applicable, but it can be important if the property is to be rented out or used otherwise to generate income, such as a storage facility, cell tower rental and office building.


Generally, a real estate appraisal is an unbiased estimate of fair market value made by a qualified appraiser for a particular property at a particular time. It is the estimate of the most probable price a typical buyer would pay for the property in a competitive and open market (see definition of Market Value).

The fundamental use of an appraisal is to provide an estimate of value, to be used in making real estate decisions.


Appraisers follow a set of federally accepted guidelines and practices known as USPAP (Uniform Standards of Professional Appraisal Practice), which govern the ethical and legal aspects of the appraisal reporting process.

Your property is first inspected and measured. The quality of construction, age, and “observable” condition of the structures are noted. Any tangible items such as views or privacy are also considered. The appraiser then estimates the property’s “highest and best use.” In the case of a single-family residential property, typically the “highest and best use” is to continue as is.

Once the inspection is completed, the appraiser next begins the estimation of your property’s value by means of one or more of three appraisal approaches:

  • The value indicated by recent sales of comparable properties in your neighborhood. (The Sales Comparison Approach)
  • The current cost of reproducing or replacing your home, less the estimated depreciation, plus the value of your land. (The Cost Approach)
  • The value that your property’s net earning power will support. (The Income Capitalization approach)

The most commonly understood and used of the three approaches to estimating value is the Sales Comparison Approach. In this method, the appraiser will compare your home to recent sales in your neighborhood. These sales are called comparables. Ideally, the appraiser would like to find a home exactly like yours right next door to yours. However, this rarely happens. The appraiser will compare your home to homes that are as similar as possible. Similarities include but are not limited to: square footage, bed/bath count, age, appeal, condition, quality of materials used in construction, and amenities. Where differences occur, the appraiser makes dollar adjustments.

These adjustments are based on the appraiser’s experience with and knowledge of the “market” and what value the “typical buyer” would place on a given amenity. It is not the “cost” of the amenity. After the dollar adjustments are made, the comparables will indicate a value range. This value range is then narrowed to indicate value with the “Sales Comparison Approach” by giving greater weight to the comparable which proves to be the most similar home in terms of its location, amenities and date of sale.

Under the Cost Approach, your property is “built on paper”. The cost to build the structures (less observable depreciation) is determined based on residential cost handbooks and the appraiser’s knowledge of local building codes and labor rates. It is then combined with the land value to estimate the value of the entire property. Land values are obtained by reviewing recent vacant land sales (if available). The cost to construct less depreciation, along with the value of the land, should ideally fall within the value range indicated by neighborhood sales in the Sales Comparison approach.

If applicable, under the Income Capitalization Approach, the income potential of your property is compared to expected returns on similar properties in the area. However, in most single family residential appraisals, the appraiser is allowed to consider but not perform this approach to value as most single family homes are owner occupied not tenant occupied

All this information is compiled and given weight in the appraiser’s Final Reconciliation consideration as to its reliability and accuracy. The most pertinent of this information is summarized in an appraisal report and presented to the “client” in the form of a Final Estimate of Market Value.

The “client” can be a person or an institution. By law, the appraiser can discuss the particulars and outcome of the appraisal with the “client” only. If your bank/mortgage company ordered the appraisal, then they are the “client” and they “own” the appraisal. Under most consumer laws (check with your state for specifics), if you pay for the appraisal, you are entitled to a copy of the appraisal but must ask the bank/mortgage company for the copy. Any questions you have regarding the appraisal itself need to be directed to the bank/mortgage company who will, in turn, contact the appraiser if further clarification is required.


An appraisal is an unbiased estimate of market value made by a qualified Appraiser, based on “observable” conditions. Appraisers are skilled in accurately interrupting what typical buyers would pay for a particular property and its amenities. A home inspection made by a qualified Home Inspector gives the buyer a detailed physical evaluation of the overall condition of the home and items that need to be repaired or replaced. In a home inspection, a qualified inspector takes an in-depth, unbiased look at your potential new home to:

  • evaluate the physical condition: structure, construction, and mechanical systems
  • identify items that need to be repaired or replaced
  • estimate the remaining useful life of the major systems, equipment, structure, and finishes

While Home Inspectors can provide cost to replace or repair estimates, they do not estimate market value.


By definition, Assessed Value is not Market Value. It is “the value of a property according to the tax rolls in ad valorem taxation. It may be higher or lower than market value, or based on an assessment ratio that is a percentage of market value” (The Appraisal Institute’s The Dictionary of Real Estate Appraisal 3rd Edition).


Below are the top ten most frequently cited FHA repairs. This list is not all-inclusive. However, accounting for these most frequently cited repairs prior to the appraisal inspection can help reduce the need for re-inspections and additional fees.

  • Have all utilities on before the appraiser arrives (i.e., water, gas, electricity, etc.).
  • Make sure the furnace will turn on even on hot summer days.
  • Make sure the hot water tank has a discharge pipe which extends to within six inches of the floor.
  • Make sure all crawl space access doors can be found and opened. Also, make sure all attic areas can be inspected.
  • Install handrails on all stairs with three or more steps.
  • Make sure all gutters have downspouts and extenders which direct the water away from the house. (Most water seepage in basements and crawl spaces is caused by the lack of extenders on gutter downspouts and negative grade, which allows outside water to pond around the foundation.)
  • Scrape and paint all peeling exterior and interior paint on all wood surfaces. Remove peeling paint from non-wood surfaces (i.e., concrete, aluminum, etc.) unless re-painting these surfaces is more desirable.
  • Repair all broken windows.
  • Repair or replace all uneven or badly cracked hazardous concrete or asphalt including public sidewalks. Use appropriate repair materials. Also, “mud jacking” uneven concrete can be less costly.
  • “Tuck Point” cracks in mortar of brick or cinder block areas around porches, foundations,etc.

The price at which a property is anticipated to sell in a competitive and open market, assuming an arms length transaction whereby:

  • The analysis reflects the subject property “as is” and is based on its present use as a residential dwelling.
  • Both parties are well-informed or well-advised and acting in what they consider their best interests.
  • Payment is made in cash or its equivalent. Financing, if any, is on terms generally available in the community and typical for the property type in its locale.
  • A reasonable marketing period, not to exceed 120 days and commencing on the date of appraisal (inspection), is allowed for exposure in the open market. The analysis assumes an adequate effort to market the subject property.
  • Forecasting is applied in making an estimate of a future happening or condition, based on an analysis of trends in the recent past, tempered with analytical judgement concerning the probable extent to which these trends will continue into the future, and reflecting an estimated impact, if any, upon the sales price.

The most probable price at which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:

  • Buyer and seller are typically motivated;
  • Both parties are well-informed or well-advised, and each acting in what he/she considers his/her own best interest;
  • A reasonable time is allowed for exposure in the open market;
  • Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto;
  • The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

The power to take a private property for public use by the state, municipalities, and private persons or corporations authorized to exercise functions of public character. At its bare essentials, eminent domain is the power of the sovereign to take property for public use without the owners consent.


The act or process of enforcing the right of eminent domain.


All states require appraisers to be state licensed or certified in order to provide appraisals to federally regulated lenders. Some states require appraisers to be licensed or certified to provide appraisals for other parties as well. To become licensed or certified, one must pass an examination that is administered by your state’s appraisal board. Because state requirements vary, contact your state’s regulatory agency for specific requirements. The Appraiser Qualifications Board (AQB) of The Appraisal Foundation is authorized by Congress to establish the minimum requirements for Certified General Real Property Appraiser and Certified Residential Real Property Appraiser classifications, and the AQB provides recommended minimum requirements for the Licensed Real Property Appraiser and Trainee classifications.


The highest and best use of a property is defined as that reasonable and most probable use that will support its highest present value. The highest and best use, or most probable use, must be legally permissible, physically possible, financially feasible, and maximally productive. The highest and best use concept is based upon traditional appraisal theory and reflects the attitudes of typical buyers and sellers who recognize that value is predicated on future benefits. This theory is based upon the wealth maximization of the owner, with consideration given to community goals. A use which does not meet the needs of the public will not meet the above highest and best use criteria.