Financing
Appraisal
A licensed appraiser's independent estimate of a property's market value, usually ordered by the lender before a loan closes.
Glossary
Financing
Primary references on this page:
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The Appraisal Foundation: Uniform Standards of Professional Appraisal PracticeAn appraisal is a formal opinion of a property's value prepared by a licensed appraiser, most often because a lender requires one before funding a loan. For residential rentals the appraiser typically leans on recent sales of comparable properties, adjusting for differences in size, condition, and location; for larger income property the income approach — value derived from net operating income — carries more weight. The lender uses the result to size the loan, since loan-to-value is calculated against the lower of price and appraised value.
An appraisal below the contract price is one of the most common ways a deal wobbles: the buyer must bring more cash, renegotiate, or walk under an appraisal contingency. It is worth remembering what an appraisal is not — it is one professional's estimate on one date, not a guarantee of resale value, and it is distinct from an inspection, which assesses condition rather than worth.
Approaches are selected and reconciled for the assignment
The sales comparison approach analyzes relevant sales and adjustments; the income approach relates supported income to market evidence; and the cost approach considers land plus improvement cost less applicable depreciation. Their relevance depends on property type, intended use, available evidence, scope, and applicable standards. An appraisal does not have to weight every approach equally.
From engagement to reviewable value opinion
A reviewable workflow records the client and intended use, property rights, effective date, scope, property data, inspection extent, market evidence, adjustments, applicable approaches, reconciliation, assumptions, limiting conditions, and final opinion. A challenge should identify a factual error, omitted relevant evidence, unsupported adjustment, or scope inconsistency rather than demand a target value.
A licensed appraisal is a standards-governed assignment by a qualified appraiser. A comparative market analysis is commonly a brokerage market estimate; an automated valuation model applies a statistical or rules-based model; and a broker price opinion is a broker’s opinion under its applicable scope and rules. Availability, permitted use, and regulation vary, so these products are not interchangeable merely because each produces a number.