Appraisals are an important part of the homebuying process. A real estate appraisal establishes a property's market value – the likely sales price it would bring if offered in an open and competitive real estate market. Lenders require appraisals when buyers use their new homes as security for their mortgages. An appraisal provides the lender with an assurance that the property will sell for at least the amount of money it is lending.
The purpose of a commercial appraisal is to give an unbiased and accurate report on the market value of your property.
When valuing real property, there are three basic approaches, which can be employed, being the Cost, Income and Direct Comparison Approaches.
The Cost Approach to value is used when valuing properties consisting of land and building(s) and is most effective when the building(s) are relatively new and not suffering from any great amount of depreciation. Utilizing this approach to value, the land value is estimated by the Direct Comparison Approach based on sales of comparable properties.
The Income Approach to value is used to value investment type properties such as industrial buildings, apartment buildings, office buildings and the like. Gross income is estimated based on economic (market) rents and the expenses necessary to maintain the income stream are also calculated.
The Direct Comparison Approach is most widely used and generally the most reliable method of valuation, assuming enough market data is available to substantiate the opinion of value. To employ this approach, a search of the market is conducted to find sales of comparable properties. When properly adjusted, these comparables will yield an indication of Market Value of the subject property and will reflect the interaction of vendors and purchasers in the open market as they arrive at a price that is considered fair by both parties involved.