How does an appraiser reach an “opinion of market value?”

An opinion of market value is an estimate of how much a property is worth in any given market. An opinion of value is reached by using one of three standard approaches:

  • The Cost Approach estimates what it would cost to replace or reproduce the improvements as of the date of the appraisal. An appraiser will subtract out any deterioration and then add in the land value to determine an opinion of market value.
  • The Comparison Approach is the most common approach to value used in an appraisal. This approach looks a properties of similar size, quality, and location that have recently sold in order to derive a comparative value. An appraiser will adjust for variations between properties to reach an opinion of market value.
  • The Income Approach is generally used for commercial properties, and for income producing residential homes such as duplexes. The income approach estimated the value of the property based on the net income the property produces.

As we’ve mentioned in multiple posts, the market value for the home is NOT necessarily how much the buyer is paying or the seller is asking. Sometimes the buyer is super motivated and is willing to pay a higher price than asking value, or the seller is desperate and is willing to sell it at a lower price to move it quickly. The market value is the price that a typical buyer would pay, after the home has been open to the market.