Real Property Appraiser for Real Estate
Appraisers determine the value of something. A real property appraiser determines the value of real property.
The Definition of Real Property
The terms real property, real estate and personal property are not interchangeable.
- Real estate is land, along with all of the things that are permanently attached to the land, such as a house, garage or barn. Real estate is immobile (cannot be moved) and it is tangible (we can touch and see it!).
- Real property is real estate plus the rights of ownership, including what we call the bundle of rights. These rights are established by law but are almost always subject to some restrictions and limitations. (Just because you own a parcel of land does not mean you can build a nuclear power plant on it, unless you have met the specific criteria set by the government for such a facility.) The bundle of rights includes the rights to sell, occupy, lease, mortgage or donate property, or to do none of these things with it.
- Personal property is property that is mobile – it can be moved. This includes our stuff that immediately pops to mind like clothing, cooking equipment, books and furniture. It also include security instruments such as Certificates of Deposit (CDs), mortgages, stocks and bonds, etc. The term chattel is defined by the on-line Merriam Webster dictionary as, “1 : an item of tangible movable or immovable property except real estate and things (as buildings) connected with real property”.
What Gives Real Property Value?
A Real Property Appraiser, more commonly called a Real Estate Appraiser, determines the value of real property. The process of determining this value is called an appraisal. When an appraiser has finalized his or her report and has determined the value of the property, the final result is called the opinion of value.
In order to determine value, an appraiser needs an understanding of value theory. Value theory is way too complex to get into in this post. For our purposes, we’ll use the list of value theory elements from Harrison & Lee’s Basic Appraisal Principals: anticipation, change, supply, demand, substitution, balance and externalities. In addition, Harrison & Lee states that a real estate appraiser needs to understand:
- Highest and Best Use (what is the best (most valuable) use of the property, even if that isn’t the current use?)
- The forces that influence real property values (social, economic, governmental and environmental) and
- Factors of value (utility, scarcity, desire and effective purchase power)
How Does a Real Property Appraiser Determine the Value of Property?
Real estate appraisers use three Approaches to Value. These approaches to value are: the sales comparison approach, the cost approach and the income approach.
For most residential appraisals, the most common approach is the sales comparison approach. This approach uses similar properties that have recently sold (the comparables, or comps) to derive the value of the subject property (the property that is being appraised). The sales comparison approach is used because recent sales of similar properties tell us what the market is willing to pay for a particular type of property in a particular market area.
To be considered comparable, properties have to have similar characteristics to the subject property, including similarities of size, location and condition. The comps also need to have sold under similar terms, which means that a home “sold” from a mother to her son is not a good comp because the price they agreed on is not likely to reflect the true market value of the property.
Steps of an Appraisal
For a better understanding of the steps taken during the appraisal process, please read our three-part series about the Residential Appraisal Process.
For a better understanding of how the square footage of a house is determined, you can read our three-part series on Determining the Square Footage of a House.