The process of creating an appraisal report consists of an estimation which leads to an opinion of value. There are three "common approaches to value" which helps the real estate appraiser come to this opinion or estimate.

• The Cost Approach is how much capital required to replace the improvements, less physical deterioration and other factors, then adding the land value.
• The Sales Comparison Approach deals with finding comparable homes nearby and discovering the value based on comparing those properties to the home in question. Generally speaking, the Sales Comparison Approach is the most accurate indicator of value of a home.
• The Income Approach (least common) is mainly used to determine the value of a property based on what an investor would pay based on the capital produced by the building.

An appraiser provides a professional, unbiased opinion of market value, to be used in making real estate transactions. Appraisers display their professional analysis in appraisal reports.

There are many reasons to purchase an appraisal with the most common reason being real estate and mortgage transactions. Some other reasons for getting an appraisal report include:

• If you are applying for a loan.
• If you would like to reduce your property tax burden.
• To show the replacement cost of insurance.
• To fight high property taxes.
• If you need to take care of an estate.
• To offer you a leg-up when purchasing real estate.
• To find a reasonable sales price when selling real estate.
• To protect your rights in a condemnation case.
• Government agencies such as the IRS need an appraisal on every home.
• It's possible you could be involved in a lawsuit - an appraisal will help.

The appraiser is not a home inspector and he or she does not do a comprehensive home inspection. A third-party home inspector will evaluate the structure of the home, from the roof to the foundation. Usually, a home inspection report will explain the amenities and the necessities of the property: air conditioning (weather permitting), electrical systems, the condition of the heating system, the plumbing; then the structural integrity of the home such as the attic, exposed insulation, walls, floors, ceilings, windows, then the foundation, basement and visible structures.

Frankly, the difference is like night and day. The CMA relies on vague local market trends. An appraisal is based on comparable sales that can be verified by records. Location and building prices are also precedent in an appraisal. All a CMA does is generate a "ball park figure." Delivering a defensible and careful analysis, an appraisal will give a clear opinion of value.

But the biggest difference is the person creating the report.

• A CMA is created by a real estate agent who may or may not have a true grasp of the market or valuation concepts.
• The appraisal is created by a licensed, certified professional who has made a career out of valuing properties. Further, the appraiser is an independent voice, with no vested interest in the value of a home, unlike the real estate agent, whose income is tied to the value of the home.

Each report must reflect a credible estimate of value and must identify the following:

• The client and other intended users.
• The intended use of the report.
• The purpose of the assignment.
• The type of value reported and the definition of the value reported.
• The effective date of the appraiser's opinions and conclusions.
• Relevant property characteristics, including location attributes, physical attributes, legal attributes, economic attributes, the real property interest valued, and Non real estate items included in the appraisal, such as personal property, including trade fixtures and intangible items.
• All known: easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and other items of a similar nature.

Division of interest, such as fractional interest, physical segment and partial holding.

The scope of work used to complete the assignment.

In communicating an appraisal report, each appraiser must ensure the following:

• That the information analysis utilized in the appraisal was appropriate.
• That significant errors of omission or commission were not committed individually or collectively.
• That appraisal services were not rendered in a careless or negligent manner.
• That a credible, supportable appraisal report was communicated.
• Most states require that real estate appraisers are state licensed or certified. The state licensed or certified appraiser is trained to render an unbiased opinion based upon extensive education and experience requirements. To become licensed or certified, appraisers must fulfill rigorous education and experience requirements. In addition, appraisers must abide by a strict industry code of ethics and comply with national standards of practice for real estate appraisal. The rules for developing an appraisal and reporting its results are insured by enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP).

Regulations regarding licensing and certification of Real Estate Appraisers vary from state to state. However, licensing and certification is most often associated with many hours of coursework, tests and practical experience. Once an appraiser is licensed, he or she is required to take continuing education courses in order to keep the license current.

Typically, appraisers are employed by lenders to estimate the value of real estate involved in a loan transaction. Appraisers also provide opinions in litigation cases, tax matters and investment decisions.

Gathering data is one of the primary roles of an appraiser. Data can be divided into Specific and General. Specific data is gathered from the home itself. Location, condition, amenities, size and other specific data are gathered by the appraiser during an inspection.

• General data is gathered from a number of sources.
• Local Multiple Listing Services (MLS) provide data on recently sold homes that might be used as comparables.
• Tax records and other public documents verify actual sales prices in a market.
• Flood zone data is gathered from FEMA data outlets, such as Metro Appraisals' InterFlood product.
• Most importantly, the appraiser gathers general data from his or her past experience in creating appraisals for other properties in the same market.

Anytime the value of your home or other real property is being used to make a significant financial decision, an appraisal helps. If you're selling your home, an appraisal helps you set the most appropriate value. If you're buying, it makes sure you don't overpay. If you're engaged in an estate settlement or divorce, it ensures that property is divided fairly. A home is often the single, largest financial asset anybody owns. Knowing its true value means you can the right financial decisions.

PMI stands for Private Mortgage Insurance. It insures a lender against loss on homes purchased with a down-payment of less than 20%. Once equity in the home reaches 20% you can eliminate the PMI and start saving immediately.

The first step in most appraisals is the home inspection. During this process, the appraiser will come to your home and measure it, determine the layout of the rooms inside, confirm all aspects of the home's general condition, and take several photos of your house for inclusion in the report. The best thing you can do to help is make sure the appraiser has easy access to the exterior of the house. Trim any bushes and move any items that would make it difficult to measure the structure. On the inside, make sure that the appraiser can easily access items like furnaces and water heaters.

The following Items, if available, will help your appraiser to provide a more accurate appraisal in a shorter period of time:

• A survey of the house and property.
• A deed or title report showing the legal description.
• A recent tax bill.
• A list of personal property to be sold with the house if applicable.
• A copy of the original plans.

Market value or fair market value is the most probable price that a property should bring (will sell for) in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(1) Buyer and seller are typically motivated.

(2) Both parties are well informed or well advised.

(3) A reasonable time is allowed for exposure to the open market.

(4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto.

(5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

In most real estate transactions, the appraisal is ordered by the lender. While the home buyer pays for the report as part of the closing costs, the lender retains the right to use the report or any information contained within. The home buyer is entitled to a copy of the report - it's usually included with all of the other closing documents - but is not entitled to use the report for any other purpose without permission from the lender.

The exception to this rule is when a home owner engages an appraiser directly. In these cases, the appraiser may stipulate how the appraisal can be used; for PMI removal, or estate planning or tax challenges, for example. If not stipulated otherwise, the home owner can use the appraisal for any purpose.

The answer to this is different depending upon the location of the home. Different markets value amenities differently. Adding a central air conditioner in Houston, Texas may add significant value, while putting one in a home located in Buffalo, New York might not have much impact.

As a rule, the most value returned from renovating a home comes in the kitchen. According to one national survey, kitchen remodels returned an average of 88% of the investment. In other words, a $10,000 kitchen remodeling project would add approximately $8,800 to the value of the home. Bathrooms were second, returning 85%.