View our tutorial video.
View a sample appraisal This is the appraisal form we are currently using, but the sample is incomplete and not the quality provided by Bayer Appraisals. Actual report includes photos of the subject and comparables, maps and a floor plan sketch of the subject property. 

An appraisal is the act or process of developing an opinion of value - or the most probable price a property should bring as of a specific date.  The appraisal is typically ordered by the lender (client) to help them understand the property that will be the collateral for a real estate loan they are considering making.  They are interested in having a professional estimate of the current market value of the property and also want to know about the property, its neighborhood and market conditions - so a prudent lending decission can be made.

The lender will be looking at the qualifications of the borrowers - do they have adequate income and assets to afford the monthly mortgage payments, do they have a good track record of keeping up with their debt (usually determined from a credit report) and does the property have adequate value to justify the loan requested.

The loan offered will be based on the lenders  assessment of the risk of making that loan.   Things that make for a riskier loan include:

A high loan amount in comparison to the property value.

A loan that takes up a large amount of the borrower's take home pay.

A loan made to a borrower with lots of debt in relationship to their income.

A loan made on a non-owner occupied property.

A loan made on a property in an area where home prices might do down over time.

A loan made on a property that does not have good market appeal, and would be difficult to sell if the borrower has trouble making the monthly payments. 

The Appraisal Process:

The appraiser will start the appraisal process by learning all she can about the property to be appraised: from public records, possibly prior or current MLS listings and finally with a actual visit to the property.  Sometimes the client requests only a drive-by inspection be made of the property or alternative valuation methods are used.  

The appraiser will search for sales, pending sales and even current listings of hopefully similar  homes.  The best comparables are sales of similar size, age, quality homes that have sold recently, near-by.  Dollar adjustments will be applied to the sales prices of the chosen comparables to account for the differences between those properties and the subject property being appraised. 

There is no magic appraisal formula: different appraisers will choose different comparables and apply different adjustments: often resulting in different estimates of market value for the same property. 

In addtion to the Sales Comparison approach the appraiser can use the Cost Approach
The cost approach is the easiest to understand. The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. Why would you pay more for an existing property if you could spend less and build a brand new home instead? While there may be mitigating factors, such as location and amenities, these are usually not reflected in the cost approach.

Or the Income Approach
Where a value is determined from the rent (income) the property might generate and the typical return an investor would expect to determine a reasonable sales price of the property being appraised.