DEFINITION OF MARKET VALUE: The most probable price which a property should bring 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, and each acting in what he or she considers his or her own best interest.

(3) A reasonable time is allowed for exposure in 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.

'*'Adjustments to the comparables must be made for special or creative financing or sales concessions.
No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transaction.
Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment.(FNMA form 1025, March 2005.)

Undue factors would include special circumstances like bankruptcy or foreclosure on the seller's part, below market financing to close the deal, or any other incentive or circumstances that are not present in a "normal" transaction.

First, they consider what would be the highest and best use of the real estate in question.
If it is determined to be a single family dwelling or whatever is currently occupying the land, then the real estate appraiser will appraise the property as such.

The appraiser will inspect the subject property and make note of such things as the square footage of the residence, the acreage of the land the house sits on, what condition the property is in and what amenities it has.
The appraiser will also look at the title and public records to determine any easements or rights that are recorded affecting said real estate.

The appraiser will then start to gather recent comparable sales (comps) of other similar homes that have sold as close as possible in distance and time to the subject sale.
Usually they are looking for real estate sold within the same tract (or similar homes within a half mile to a mile radius) and within the last six months.

Sometimes this is not possible if it is a unique property or the market is flat!

In those cases the appraiser will expand the time and distance to eventually come up with comps even if it is in the next county.
The appraiser will make adjustments to the comps to "equalize" the time and distance factors.

When the appraiser has at least three good comps he will study them and adjust the price of the comps, NOT the subject property to arrive at an opinion of market value.

The adjustments will be made up OR down depending on the amenities, square footage, lot size etc. of the comps COMPARED, to the subject real estate.

This is the COMPARISON APPROACH of real estate appraisal and is what carries most weight in residential real estate appraisal.

There are other methods such as the COST APPROACH that can be figured in, but as said already, the comparison approach has the most weight unless the property is basically a tear down and sold for land value.

So who governs Appraisers and how do I know their "value" is correct?

All licensed appraisers must conform to USPAP, the Uniform Standards of Professional Appraisal Practice

These standards are set by the Appraisal Foundation a governing body approved by Congress.

For further info, check their website.


Real estate appraisers are licensed by the State and have to abide by USPAP.

There are now very strict licensing and continuing education requirements.
The licensing process was tightened up considerably under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 after the Savings and Loan scandals of the '80's.

Before this time, appraisers were not licensed and ANYONE could hang out a shingle and call themselves an "appraiser" if the lender would accept them!

There are still some appraisers out there who were grandfathered in when licensing became mandatory, but continuing education has brought them up to snuff or weeded them out.