The Appraisal Process
This is a short synopsis of how
an appraisal is prepared.
- The appraisal process is the process of collecting, analyzing and reconciling data that relates to the property being appraised. This data is formatted in a logical order to lead the reader of the report to the same conclusion as the appraiser. There are several types of appraisal reports. The "Self Contained Appraisal" report, the "Summary Appraisal" report, and the "Restricted Appraisal" report. The differences in the three types of reports is the level of detail presented to the reader/client. The "Self Contained Appraisal" is the most detailed of the three types of reports. This report type is generally prepared in a narrative format and for commercial properties. The "Restricted Appraisal" is the least descriptive of the three report types, and is restricted in its use to the client, and considers anyone else using the report as an unintended user. This report is primarily intended for the 2nd mortgage market under certain lender guidelines. The Summary Appraisal is the most popular type of report used for residential lending. This report is also used for a wide array of valuation assignments. (i.e.: Estates, Divorce, Setting Listing Prices, Insurance Claims, Liquidation, Court Testimony, Assessment Appeals, PMI Removal, Foreclosures and others.) Both the summary appraisal and Restricted Appraisals are generally prepared on a standardized form with the narrative in book form.
- The preparation of the appraisal generally begins with an interior and exterior inspection of the building and property. The appraiser looks for assets and detriments that the real estate offers by viewing the property with an objective/non bias eye.
- Some of the more important features of the property are gross living area, condition, quality of construction, location, layout, number of bedrooms and bathrooms and lot size to name a few. The appraiser also notes amenities such as central a/c, fireplaces, decks, recent renovations, pool, fencing etc. It is important for the homeowner to point out amenities, or recent improvements that may not be obvious to the appraiser in a normal walk through of the subject property.
- The appraiser also makes an assessment of the neighborhood and surrounding area, noting the location of amenities which may be important to the average home owner and/or buyer. In some cases these same items may be a detriment to the property based on there proximity to the subject. Residential properties that are too close to non residential properties may be viewed as less desirable by the typical purchaser, and reflected as such in the appraisal report.
- The appraiser needs to confirm tax data, zoning classification, and to confirm sales in the area. This can be done through various different sources such as: public records, Multiple Listing Service (MLS), professional associations, publications, physical inspections and experts (builders,attorneys, lenders and others). When all the data has been gathered it is used to make a Highest & Best Use Analysis of the subject property. Never the less it is part of the appraisal process. The data collection, focuses on the three approaches to value. These approaches to value are the Cost Approach, the Income Approach, and the Market Data Approach. Not all three approaches to value are relevant in each appraisal assignment. Depending upon the assignment, the appraiser may choose not to use one or more of these approaches.
- In the final stages of the appraisal process, the appraiser analyzes and adjusts the data collected. The appraiser reconciles the three approaches to value, giving greatest weight to the approach considered most appropriate for the property being appraised. If more than one approach to value is used in the appraisal report, each approach generally indicates a value that is reasonably close to the other approaches. After the report is finished a review of all appraisal reports are reviewed by a senior appraiser to check for consistency, accuracy, clarity and conformity to appraisal guidelines/regulations. Occasionally other experts will be hired to review our appraisals for better quality control. Once the review is complete the final changes are made and the appraisal report is published and bound. All clients receive two originals, except by prior arrangement.