Appraisal, valuation and evaluation; market value; value, price and cost

Appraisal, valuation, and evaluation

An appraisal develops an opinion or conclusion about identified real estate or rights in it. In New York, the statutory definition is broad: an appraisal can be a valuation or an analysis. Valuation estimates value; analysis studies real estate without estimating value. An appraisal report is the written communication of an appraisal.

Evaluation broadly means assessing a property's characteristics, usefulness, or suitability for a purpose. In lending, an evaluation can be a value assessment used when applicable rules permit it instead of an appraisal. Do not assume that calling work an evaluation establishes that it satisfies a lender's requirements.

Market value is an opinion, price is a fact, cost is an expenditure

Market value is the most probable price under specified market conditions as of an effective date. The usual market-value concept assumes informed, willing buyers and sellers, neither under undue pressure, reasonable market exposure, and cash or equivalent terms. It is not the highest imaginable offer or a guarantee of a future sale.

Price is the amount asked, offered, or actually paid; identify which one is meant. A completed sale produces a transaction price. Cost is the expenditure needed to acquire or create something, such as construction labor and materials. Value expresses worth under a defined basis, such as market value or investment value to a particular investor. These amounts can differ.

A house costs $410,000 to build, sells for $390,000, and has a supported market-value opinion of $400,000. The three numbers answer different questions. Construction expense does not compel buyers to pay that amount, and a particular sale can reflect unusual motivations or financing.

Identify the assignment before estimating value

Specify the property rights, type of value, purpose, scope, and effective date. Fee ownership and a leasehold are different interests. A report written today can express a value opinion effective on an earlier date. Evidence must support that dated opinion.

New York Executive Law § 160-d requires identifying the property and rights, explaining the procedures and reasoning, and stating both the effective date and report date. For market value, the appraiser must identify cash-equivalent or other precisely defined terms and explain the effects of unusual financing. New York also requires considering available sale agreements and listings rather than simply copying an asking price.

Federal law applicable in New York defines a written appraisal for a federally related transaction as an independent, impartial opinion of defined value by a licensed or certified appraiser, for an adequately described property on a specific date, supported by relevant market information.

Under New York Executive Law § 160-x, an assignment perceived as disinterested third-party work remains an appraisal assignment even if the client calls it specialized services. The function and public perception matter, as well as the label.