The Purpose of an Appraisal

An appraisal provides an opinion, usually an estimate of value, to be used in making real estate decisions. The value most commonly sought is market value. However, other concepts of value may be appropriate, depending on the client's needs.

Reasons for an appraisal include:

Transfer of ownership.

  • To help prospective buyers decide on offering prices.
  • To help prospective sellers determine acceptable selling prices.
  • To establish a basis for exchange of real property.
  • To establish a basis for reorganization for merging the ownership of multiple properties.
  • To determine the terms of a sale price for a proposed transaction.

Financing and credit.

  • To estimate the value of security offered for a proposed mortgage loan.
  • To provide an investor with a sound basis for the purchase of real estate mortgages, bonds, or other types of securities.
  • To establish a basis for a decision regarding the insuring or underwriting of a loan on real property.

Just compensation in condemnation proceedings.

  • To estimate the market value of a property as a whole-before the taking.
  • To estimate the market value of the remainder after the taking.
  • To estimate damages to a condemned property.

Tax matters.

  • To estimate assessed value.
  • To separate depreciable (or capital recapture) assets such as buildings from non-depreciable assets such as land, and to estimate applicable depreciation (or capital recapture) rates.
  • To determine gift or inheritance taxes.
  • To estimate the value of preservation easements.

Appraisals may also be requested:

  • To set rent schedules and lease provisions.
  • To determine the feasibility of a construction or renovation program.
  • To help corporations or third-party companies purchase the homes of transferred employees.
  • To serve the needs of the insured, insurer, and adjuster.
  • To aid in corporate mergers, issuance of stock, or revision of book value.
  • To estimate liquidation value for forced sale or auction proceedings.
  • To counsel a client on investment matters, including goals, alternatives, resources, constraints, and timing.
  • To advise zoning boards, courts, and planners, among others, regarding the probable effects or proposed actions.
  • To arbitrate between adversaries.
  • To determine supply and demand trends in a market.
  • To determine the status of real estate markets.

More information about appraisals: