| To be able to fully understand the concepts | | | | wants to purchase a property. He estimates |
| of residential real estate appraisal, here is | | | | the future cash flow that the property would |
| a list of important terms with meaning. | | | | generate. Then, he discounts the cash flow |
| Appraisal becomes important in times of | | | | into a lump sum value amount. Let us say |
| selling the property, buying a property, | | | | $450,000. If the home owner sells less than |
| divorcing the partner, settling the estate, | | | | $450,000, the home buyer considers in |
| and relocating an employee. In some point of | | | | purchasing the property. |
| our lifetime, we are going to encounter | | | | |
| appraisals at least once. | | | | Investment Value |
| | | | |
| Fair Market Value | | | | It is the amount that the investor would pay |
| | | | to acquire the property. The Investment Value |
| It is the median price between the highest | | | | may be higher or lower than the fair Market |
| price acceptable to buyer and lowest price | | | | value. |
| acceptable to seller. | | | | |
| | | | Insurable Value |
| Market Value | | | | |
| | | | The Insurance Policy covers the value of the |
| It is the most likely price at which the | | | | property which is the Insurable Value. |
| property would sell. The property must sell | | | | |
| at a right price in which the price is not | | | | Subject Property |
| too high and low. Thus, an overprice property | | | | |
| will sell a little longer. In most cases, an | | | | It is the property which the appraiser |
| overprice property sells when the market | | | | evaluates or analyzes. The Appraiser analyzes |
| value catch up with the selling price. | | | | the location, amenities, and condition of the |
| | | | subject property to arrive to the fair market |
| Price | | | | value. |
| | | | |
| It is often confuse with Market Value. Price | | | | Comparables or Comps |
| differs slightly from Market Value. Although | | | | |
| the Market Value gives the seller an idea how | | | | Appraiser compares the subject property to |
| much to sell the property, the price may be | | | | another local property. The other local |
| higher or lower than the Market Value. For | | | | property is called Comparables or Comps. With |
| example, a buyer is willing to pay $20,000 | | | | the information from Comparables or Comps, |
| more than the Market Value. This happens when | | | | the Appraiser calculates the fair market |
| there are many potential buyers for the | | | | value of the subject property. |
| property. | | | | |
| | | | Real Estate Appraisal covers a huge scope. |
| Value in Use | | | | It is impossible to include all appraisal |
| | | | terms. For any missing key terms, you may |
| This relates to the net present value (NPV) | | | | consider online mortgage dictionary. A |
| of the property use. The NPV is the | | | | dictionary awaits your command. In an |
| difference between present value of cash | | | | instant, it searches for possible definition. |
| inflow and outflow. For example, a home buyer | | | | |