Understand the True Value of Your Property
Explore our simplified glossary of real estate appraisal terms to gain clarity and confidence in your property decisions.
Appraisal Glossary
Whether you are buying, selling, or refinancing a property, understanding real estate appraisal terms can save you time and help you make smarter decisions. We’ve handpicked a few of the most essential terms you’ll come across in an appraisal report — explained in a way that’s easy to grasp even if you’re new to real estate.
Appraisal
An appraisal is a professional, unbiased estimate of a property’s value conducted by a licensed appraiser. It’s a crucial step in real estate transactions, especially for lenders who want to ensure the home is worth the amount they’re financing. The appraiser examines the home’s physical condition, its location, upgrades, and compares it to similar properties that have recently sold in the area. The result is a detailed report that includes photos, property details, market data, and the final estimated value. Without an accurate appraisal, buyers may overpay and lenders may take on unnecessary risk.
Fair Market Value
Fair Market Value refers to the price a property would sell for in an open and competitive market, where both buyer and seller are well-informed, willing, and not under pressure to buy or sell. This value reflects current market conditions and is often influenced by local supply and demand, neighborhood desirability, and recent sales of similar properties. It plays a vital role in pricing strategies, loan approvals, and tax assessments. Understanding fair market value helps both buyers and sellers align expectations and negotiate confidently.
Comparables
Comparables — often called “comps” — are similar homes in the same area that have sold recently. Appraisers use comps to assess a property’s market value by comparing features such as square footage, number of bedrooms, lot size, age of construction, renovations, and location. For example, if a home next door recently sold for $500,000 and is nearly identical, your property may be valued in a similar range. Comps must be carefully chosen to ensure accuracy, as differences in condition or even being on the opposite side of the street can significantly affect value. Comps are the backbone of the Sales Comparison Approach, which is the most common method used for valuing residential homes.
Cost Approach
The Cost Approach is an appraisal method that estimates the value of a property by calculating how much it would cost to rebuild it from scratch, using current construction costs and subtracting depreciation due to age or wear. This value is then added to the estimated land value. This approach is especially useful for new builds, custom homes, or unique properties that don’t have many comparables. While it’s less common for residential appraisals, it becomes essential when valuing insurance replacement costs or specialized structures like schools or churches.
Equity
Equity represents the portion of your property that you truly own — calculated by subtracting your mortgage balance from the current market value of the home. For example, if your home is worth $400,000 and you owe $250,000, you have $150,000 in equity. As you pay down your mortgage or your home appreciates in value, your equity increases. It’s one of the biggest financial advantages of owning a home, as equity can be used for loans, upgrades, or as profit if you sell. Understanding equity is key to leveraging your real estate investment wisely.
Need Help Understanding Your Home’s Value?
Let our team guide you through the appraisal process. Whether you’re preparing to sell, buy, or refinance — we’re here to answer your questions and provide expert insights tailored to your property.