Real estate appraisal or property valuation is the process of determining the value of real estate based on its highest and best use (which basically translates into determining the fair market value of the property). The person who performs this real estate appraisal work is called a real estate appraiser or real estate appraisal surveyor. The value determined by the real estate appraisal is the fair market value. Real estate appraisals are completed using a variety of methods, and the value of a real estate appraisal varies depending on the purpose; for example, a real estate appraisal may assign two different values to the same property (improved value and vacant value), and similarly, the same/similar property may be assigned different values in a residential and commercial zone. However, the value assigned as a result of a real estate appraisal may not be the value a real estate investor would consider when evaluating a property investment. In fact, a real estate investor may completely ignore the value generated in the real estate appraisal process.
A good real estate investor will evaluate the property based on the development of the area. Therefore, the real estate appraisal done by the real estate investor will result in a value that the real estate investor could buy by underpaying and selling the property at a higher price (as it is now). Similarly, a real estate investor may make his own assessment of the expected value of the property, for example, in 2 years or 5 years. Similarly, a real estate investor may do a real estate appraisal based on the value he/she can create for the amount invested in the property, i.e., the real estate investor may decide to buy a dirty/horrible property (that no one likes) and make some minor repairs, painting, etc. to increase the value of the property (the value the real estate investor can get by selling the property on the market). So, here, the meaning of a real estate appraisal changes completely (and can be very different from the value a real estate appraiser comes up with when he does a real estate appraisal of the property).
A real estate investor usually makes an investment decision based on a real estate appraisal that he has performed himself (or through someone else). Therefore, can we call a real estate appraisal a true “real estate appraisal”?