The American Education Institute

The underlying principal of investment property appraisal concerns the element of time; that is, any real estate appraiser hired to evaluate/value a property does so as of a certain date.  Hence, property values are susceptible to very radical change.  The day after an investment property  appraisal is done, an earthquake could hit and the property be worthless.  Or, a country club could be  built behind the backyard and suddenly the appraised property is worth three times what the appraisal report indicates it is.  Never is an appraisal report cast in stone, and you should not base your offer to purchase on what any one investment real estate appraisal report states.

A professional investment real estate appraisal report is merely a statement of one professional opinion as of a certain specified date.  Investment properties in general almost always have a range of fair market value, which usually varies by as much as 2 1/2 percent either way, and yet professional real estate appraiser always seek to estimate just one specific fair market value.  They do this in several different ways because there are always so many different variables involved.  For your purposes here, these different ways can all be condensed into three basic appraisal methods (The income approach, the cost approach and the market approach).  And because you won’t be relying upon a professional real estate appraisal report for each and every single property you buy, you owe it to yourself to become familiar with these three basic methods/approaches that these real estate appraisers use.

One thing you must remember is that all three of these methods/approaches ignore any debt on the investment property being appraised.  To you certainly, the existing debt and/or the financing you are able to arrange to buy an investment  property figures in very greatly as to how much it is truly worth.  An appraiser, however, does not see it that way.  He or she will appraise any given parcel of real estate as though it were completely free of any debt whatsoever.

Dr. Eric T. Martin / 100% Financing When Buying Real Estate / August 8, 2009