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Real estate appraisal
Real estate appraisal is the practice of
developing an opinion of the value of real property, usually its
Market Value. (Real estate appraisal is American usage; many
other countries use the terms property valuation or land
valuation.) The need for appraisals arises from the heterogenous
nature of property as an investment class: no two properties are
identical, and all properties differ from each other in their
location - which is the most important determinant of their
value. So there cannot exist a centralised Walrasian auction
setting for the trading of property assets, as there exists for
trade in corporate stock. The absence of a market-based pricing
mechanism determines the need for an expert appraisal/valuation
of real estate/property.
A real estate appraisal is performed by a licensed or certified
appraiser (in many countries known as a property valuer or land
valuer). If the appraiser's opinion is based on Market Value,
then it must also be based on the Highest and Best Use of the
real property. For mortgage valuations of improved residential
property in the US, the appraisal is most often reported on a
standardized form, such as the Uniform Residential Appraisal
Appraisals of more complex property (e.g. -- income
producing, raw land) are usually reported in a narrative
Type of Value
There are several types and definitions of value
sought by a real estate appraisal. Some of the most common are:
* Market Value : The price at which an asset would trade in a
competitive Walrasian auction setting. Market Value is usually
interchangeable with Open Market Value or Fair Value.
International Valuation Standards (IVS) define Market Value as:
Market Value is the estimated amount for which a property should
exchange on the date of valuation between a willing buyer and a
willing seller in an arms-length transaction after proper
marketing wherein the parties had each acted knowledgably,
prudently, and without compulsion.
* Value-in-use : The net present value (NPV) of a cash flow that
an asset generates for a specific owner under a specific use.
Value-in-use is the value to one particular user, and is usually
below the market value of a property.
* Investment value : is the value to one particular investor,
and is usually higher than the market value of a property.
* Insurable value : is the value of real property covered by an
insurance policy. Generally it does not include the site value.
* Liquidation value -- may be analyzed as either a forced
liquidation or an orderly liquidation and is a commonly sought
standard of value in bankruptcy proceedings. It assumes a seller
who is compelled to sell after an exposure period which is less
than the market-normal timeframe.