Whether you are considering obtaining an appraisal or have already decided to move forward with one, it is important to understand the appraisal process and the report you will be receiving. Below is some key terminology and definitions that will help ensure your appraisal comprehension:
Comparable property: a property that is sufficiently similar to that subject property to permit comparison
Cost approach: approach to value that involves estimating the cost needed to replace the property in the event of a loss or damage
Fair market value: the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts
Income approach: approach to value that involves a comparison with income producing records of similar property
Intended use: the reason an appraisal is being conducted; the way in which the client will use the report
Market value: the most probable price that a buyer will have to pay, and that the seller is most likely to receive, for an item of property within the defined marketplace at a particular point in time.
Sales comparison approach: approach to value that involves comparison of the subject property with similar items that have sold within a similar market.
Replacement cost: the cost to replace an item with another having similar qualities within a reasonable amount of time in the relevant marketplace.
*as defined by the International Society of Appraisers