FHA Home Loan Appraisals

Central to an appraisal is the determination of a property's market value (also known as the fair market value).  Market value is the most probable price a buyer is willing to pay a seller for a product on the open market.  Market value is not the highest price possible for a home; rather, market value is the most likely price the property will receive.

Market value should not be confused with asking price, offering price or sales price.  Asking price is what a seller indicates as a fair and reasonable offer for a home.  A seller is free to set whatever asking price he/she chooses. An offering price, on the other hand, is a number that the buyer feels as a fair and reasonable offer for a home.  This may be an accurate reflection of the true market value of a home or an attempt by the buyer to purchase the property at a considerable discount.  The sales price is what the buyer and seller actually agree upon through negotiations and generally lies somewhere between the asking price and the offering price.  

To derive a final estimate of a property's market value, an FHA appraiser relies on three appraisal methods (or approaches)--the sales comparison approach, the cost approach, and the income approach.  These methods provide a clear estimate of value for the lender