All home owners have bought at least one, but many people do not know what a real estate appraisal is, beyond the basic thought that it is how financial institutions determine how much a piece of property is worth.  However, a little knowledge can help the consumer understand the process and maximize their purchase.

Essentially, a real estate appraisal is the process whereby an uninvolved third party develops an opinion of the value of a piece of property, based upon that property’s “highest and best use”.  That means essentially when the property is being used in the best way it can be under the current circumstances. 

A number of factors go into developing this opinion, but that is sometimes a surprising key fact – it is just an opinion.  It is an educated opinion, formulated with market based facts, but an opinion still.  If you obtain multiple real estate appraisals on the same property at the same time, you will likely get a different value from each.  While they should be relatively close to each other, unless the appraisers are just using one of the automated services, there will be differences of opinion.

An appraisal takes into consideration a multitude of factors.  The most influential factors are comparable sales, often referred to as “comps”, and the current condition of the property.  Comps are valuable because they give a factual real-world view of what similar properties have sold for in the same market recently.  However, two identical properties, one meticulously kept and the other run down, will not sell for the same amount.  So, a real estate appraisal will be delivered as a range, and your actual target price will be determined by the condition of the particular property.