What an appraisal really is
An appraisal is an analysis, opinion, or conclusion relating to the value of identified real estate. The key word is opinion: an objective third-party opinion reached without pressure from owner or lender, tied to a specific effective date.
It is not a guarantee of the price the property will bring at closing, and not a binding determination the lender and borrower must accept — lenders rely on appraisals, but an appraisal binds no one. Nor is it a record of what the property cost the owner; cost can differ from value.
The federal market value conditions
Market value is the most probable price in a competitive and open market, buyer and seller typically motivated and well informed, with a reasonable time allowed for exposure in the open market.
- Neither party is under undue stimulus, so a seller pressured to sell quickly breaks the definition.
- Price must be normal consideration unaffected by special or creative financing or sales concessions.
- Payment is cash in U.S. dollars or comparable financial arrangements — not cash only.
The order of the steps
The process begins by defining the problem: client and intended users, intended use, type and definition of value, effective date, property characteristics, and assignment conditions. Only then does the appraiser list the data needed, gather and verify comparable sales data (step three), determine highest and best use, and finally apply the approaches.
Highest and best use must pass four tests: legally permissible, physically possible, financially feasible, and maximally productive. Do not confuse those with DUST or with the four forces influencing value.
Reconciliation is judgment, not averaging
Reconciliation is the final step: the separate value indications are weighed into one opinion of value. The trap is averaging. You weigh each indication by property type and data quality, with sales comparison carrying the most weight for residences, and deliver a single opinion. You do not hand the client a range to choose from, and you do not take the highest figure — cost new tends to set the upper limit of value.