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Home Appraisal Terms New Real Estate Agents Should Know


Whether you are a new real estate agent or one who has been in the business for years there may be some home appraisal terms that you are not familiar with. Below are a few appraisal-related terms that would be helpful for new real estate agents to know in order to make your job easier when trying to understand appraisals.


1) Appraisal- Most people will know what an appraisal is but we have to start somewhere so we’ll go with it.


Most people mistakenly confuse the report you get with being the appraisal but that’s just the report. The official definition of the term specifies that an appraisal is “The act or process of developing an opinion of value. To build upon that, another definition further specifies that “An appraisal is a supportable and defensible opinion of value.”


2) Appraisal Report- An appraisal report is a written report that contains data and evidence that supports the appraiser’s professional opinion of value. It includes numerous items including information about the property being appraised as well as market supported data that was used to arrive at the value.


3) Home Inspection- People sometimes confuse a home inspection with an appraisal. I wrote about differences between the two more in-depth in another post which you can read but for now, I will keep it short and sweet.


An appraisal is concerned with the market value of a home. It takes into consideration the physical attributes of a home such as its size, condition, quality of construction and features.

The home is compared to other similar homes that have recently sold.


A home inspection, in contrast, is more focused on the physical condition of the property.


To keep it short and sweet think about it like this: appraisal=value of the home whereas home inspection=condition of the home.


4) Adjustment- An adjustment is typically a dollar figure applied to the sale price of a comparable. It represents the market value of the feature being adjusted for.


Adjustments work this way: if a comparable is inferior to the subject an upward or positive adjustment is made to the comp. If the comparable is superior to the subject then a negative adjustment or downward adjustment is made.


5) Depreciation- The simplest explanation I can think of for depreciation is a loss of value of a property from various causes. A property’s age can cause it to depreciate and renovating a property can reverse the depreciation.


Functional obsolescence can also cause depreciation if a bad floor plan results in a house selling for less than what it might if the floor plan were more readily acceptable by the market. Depreciation can also be described as the difference in value between the replacement cost of an improvement and its market value.


6) Three Approaches To Value- The three approaches to value used by an appraiser to arrive at value include the cost, income, and sales approaches. All of these approaches may or may not be used in an appraisal because it will depend on how reliable it is based on the property.


The cost approach reflects the cost of constructing a similar home with the same features and finishes. It also takes into consideration the value of the land the home is situated on.

The income approach measures the income-producing capabilities of the property. It is based on how much rental income the property can generate


The sales comparison approach is the most common and recognized of the three approaches. It utilizes comparable sales (comps) to determine what other similar properties are selling for. Adjustments are made for differences and an adjusted range of value is determined. From this range, a final value is reconciled.


The cost approach is most relevant for new construction and the income approach is useful when the subject property is rented and there are numerous other similar rental properties that can be used for comps. The sales comparison approach is pretty much used all of the time because there are usually sufficient comps to compare to the subject.


7) USPAP- This acronym stands for the Uniform Standards of Professional Appraisal Practice. It is the generally recognized ethical standards that appraisers follow when performing appraisals.


In order for appraisers to become licensed, they must follow USPAP standards.


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