The real estate appraisal process is a method of discovering the market value of a piece of residential or commercial real estate. The value arrived at in an official appraisal report represents the opinion of a licensed professional real estate appraiser. A real estate appraiser may rely upon three different “approaches” to establishing the market value of a piece of property. These approaches include an analysis of the comparable sales (“market data approach”), the cost of reproducing the subject property, and the projected rental income of the subject property if offered for rent. An appraiser may apply equal or unequal weight to each of the above valuation approaches.
Real estate appraisals are used mostly by mortgage lending institutions to establish the value of a property to be used as collateral for a proposed loan. Homeowners may hire an appraiser in an effort to appeal property taxes or to petition a lender to cancel Private Mortgage Insurance. Insurance companies may also use appraisals for policy underwriting purposes.