Money Management

What Are The 10 Types of Appraisal?

An appraisal is an assessment of the fair market value of a property, business, antique, or even a collectible item. This is often done to determine the amount of taxes that should be paid on the transaction or if a sale price is fair. A professional appraisal is generally more thorough, while an informal assessment is less detailed. The primary tools used in both kinds are comparable market analysis and cost-to-complete analysis, along with other factors such as provenance, age, and general condition.

1) Retail Appraisal

– this is the most common type of appraisal for residential or commercial property for their purposes or to establish real estate value for tax purposes. Retail appraisals are usually done by a licensed real estate agent and are typically one-on-one. These are short, automated squiggly lineups with no guidelines, but they can be done in under an hour for a fairly simple property. These will not tell you what the property is worth today or how much it will be in 6 months or one year.

2) Full Service

This appraisal type is often called a “retail with service.” Typically, this process includes describing the property’s age and condition and gathering the necessary information from current sales, comparable sales, and tax records. This provides a more detailed opinion on the value of residential or commercial properties. Complete Service appraisals are typically targeted for:

a. Buyers who seek a Loan Value (LTV) to secure or purchase a home or business property.
b. Appraisals on properties that are in dispute.

3) Investment Appraisal

– this type of appraisal will normally include a complete analysis of the property’s income potential, its estimated capitalization rate, and the estimate of profits over a multi-year period. This appraisal is often used to support an institutional lending decision. Still, it may also be used as evidence of value when placing a value on investment property, analyzing complex purchases, divorce settlements, estates, and tax valuations. This type of appraisal tends to be very detailed and would be more accurately called a “full valuation.”

4) Tax Appraisal

– this type of appraisal is usually completed as a form of consulting service. These appraisals, such as the one below, are typically done as part of a larger tax planning process where an entity often seeks to lower their taxes by getting a professional’s opinion on how to restructure their business (i.e., partnerships, limited liability companies, and other entities) or personal wealth to reduce the amount of income tax liability throughout five years. This may include recommendations for reducing future tax obligations through charitable donations or capital expenditure projects (depreciation).

5) Estate Appraisal

– This appraisal is typically needed in the context of probate and is often used to determine the approximate value of an estate’s assets. The appraiser will describe each asset as complete with its age, brand name/model number/value, and condition. This appraisal is also often used for divorce settlements in which a spouse may seek from a marital estate by aiding the court in determining what the marital property was worth before distribution.

6) Fair Market Value

– this type of appraisal is often used in insurance claims. It is usually done by private individuals who use various methods, including comparable sales, cost, and income capitalization, to determine the amount it would take to replace the lost property(ies) lost. This type would often be performed for rental properties or other personal endeavors where an appraiser would attempt to determine how much another person or entity would be willing to pay for an item in its existing state in the marketplace.

7) Expert Opinion

This appraisal type is most commonly used as evidence in cases involving real estate law, fraud, or land disputes. These are not intended to determine value but serve as opinions of the expert’s professional qualifications.

8) Preliminary Assessment

– This appraisal is often performed by a real estate agent and gives a client an idea of what the property may be worth in today’s market. This is not a formal document but can be just as influential in their business’s marketing phase. It is typically completed in less than 15 minutes and will tell you what the property is worth today (today’s value) and how much it should be worth in 6 months or one year (6-month value).

9) Fully Developed

– This appraisal is normally reserved for a commercial property such as an office building or business. This type of appraisal typically involves a full analysis and comparison of current and similar sales using comparable pricing tools (i.e., comparable market analysis) along with a cost-to-complete analysis to determine the value. A fully developed appraisal will also include a detailed report that includes age, condition, expected repair costs, and depreciation calculations.

10) “Informal” Appraisal

– This appraisal type is more commonly referred to as a “Value” or “Book” Value Appraisal. These are generally completed by accountants and tax preparers and are used to establish the value of assets for tax or accounting purposes. These values, along with the income section, may be compared to “Market” or “Fair Market Value” Appraisal to determine whether or not an entity has under-reported capital gains.

There are several different types of appraisals in use by real estate professionals around the world. These different types of assessment all serve to help provide a complete analysis and value for a specific property. To accurately compare a property’s total value, the appraisal auditor must thoroughly understand the growth rate, income potential, and all expenses, such as maintenance and repairs or costs associated with closing.