Difference between Property Valuation and Appraisal

Property valuation is the assessment of the current value of any particular property. This appraisal is based on three main factors; the size and location of the land, the size and functionality of the property and the prevailing market conditions (supply and demand) for properties having similar characteristics. Since market is an ever-changing mechanism, it is likely that the value of a property would frequently change over time with fluctuating market conditions.

A property should be valued at regular intervals. It is not necessary that the price of the property, paid for at the time of purchase, would represent its actual value for years to come. This is because the market conditions cannot be fixed for a longer period of time, as there are frequent changes in demand and supply stimulating changes.

Property valuations should be carried out by certified professionals or valuation firms who possess the relevant skills and expertise essential for an efficient and cost-effective valuation. A valuation of property would be most appropriate in situations where either the owner wishes to sell his property or needs to obtain a loan from a financial institute or lender. Many of the individuals take the market appraisal of the property as its current value. Therefore, it is important to realize here that property appraisal and property valuation are two different terms and are very different to each other.

Property Appraisal

A property appraisal is more of a subjective exercise, which can be done by using any of the three methods; the income approach, the cost approach and the sales comparison approach. All these methods have the common purpose of assessing the value of a home or property.

The Income Approach

With an income approach, an approximate figure or amount is estimated that any investor would be willing to pay. This amount would represent the amount of equity that the property will be able to generate.

The Cost Approach

The cost approach determines the cost that will have to be paid for the replacement of home improvements and land. This amount, however, excludes deterioration.

Sales Comparison Approach

This approach is completely different to the two mentioned above. This is because, under this approach, the value of a property is determined based on the selling price of nearby comparable properties that have been sold.

Property Valuation

On the contrary, a property valuation is a complex and time-consuming procedure. For this reason, valuations of properties are only done by certified and professional valuers possessing the relevant educational requirements, training and experience. A valuation of a property is typically used when an ultimate value is required, for example in cases of lawsuits, property settlements or when a decedent’s estate value has to be established.
A valuation is a much detailed exercise as compared to an appraisal. This is because an appraisal is only meant to determine an estimate, not the exact, value of a property. Therefore, it is more focused on the property’s exterior and its immediate neighbourhood. However, it may include an external assessment of the interiors of a property.