An appraisal is a professional opinion of value. This opinion is developed in accordance with the scope of work of the assignment. The opinion and analysis are then reported in a manner consistent with the intended use of the intended user. The reporting will also include the disclosures and data as required by the Uniform Standards of Professional Appraisal Practice (USPAP) and applicable state and federal laws when performed by a State Licensed Appraiser. This opinion of value is usually provided in relation to a monetary value or a range of monetary value.
Ways Appraisals are Reported:
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Verbally
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In a letter of Transmittal
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In a written form Report
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In a 200+ page written document with photos, and addenda
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In any manner requested by the client
What Can be Appraised?
An appraisal can be performed an any item. At Pointer Appraisal Services we specialize in Real Property. From time to time we value going concern and businesses when they are closely related to Real Estate.
There are persons who specialize in all types of appraisal including, personal property (antiques, collectibles), furniture, jewelry, art, automobiles, boats, farming equipment, industrial machinery, and even intangible items such as intellectual property (patents, trademarks, and copyrights).
How Long Does an Appraisal Take?
A Real Property Appraisal can take as long as years or more to develop or as little as 30 minutes.
What is important to understand is that the scope of work and intended use will determine the complexity and completeness of analysis. Generally speaking, the more complete the analysis, the more accurate the resulting opinion of value.
Some Appraisals are Not as Accurate as Others, and that is OK:
The scope of work and the intended use of the appraisal will determine the accuracy and completeness of the analysis.
For instance someone seeking to loan money based on a mortgage to a well qualified borrower and a loan of less than 50% of the value of the property may not require a extremely accurate valuation. However, someone seeking to loan money based on a mortgage of 95% of the value of the property to a borrower with poor credit history may seek a very complete and accurate valuation.
These clients may request different inspections, one may be a desktop analysis based on county records and the other may be a interior viewing of all items including the crawl space and attic.
Clients make decisions based on the cost of the appraisal and the perceived risk and benefits due to the accuracy of the results. It is important for both parties to understand the purpose and motivations at engagement.
The Inspection
The extent of inspection of the subject property should be determined by the intended use of the appraisal and the extent to which the scope of work permits. The extent of an inspection may include a viewing from the desk of the appraiser based on public or client provided records, or it may include a personal viewing of the property and interior and exterior.
Modern Appraisal Methodology includes three approaches to determining the value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income approach. The scope of work and intended use of the assignment, as well as the considerations of the market participants will determine the most approach methods to utilize.
Cost Approach
The cost approach is the easiest to understand. The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. Why would you pay more for an existing property if you could spend less and build a brand new home instead? While there may be mitigating factors, such as location and amenities, these are usually not reflected in the cost approach.
Sales Comparison
Instead, appraisers rely on the sales comparison approach to value these types of items. Appraisers get to know the neighborhoods in which they work. They understand the value of certain features to the residents of that area. They know the traffic patterns, the school zones, the busy throughways; and they use this information to determine which attributes of a property will make a difference in the value. Then, the appraiser researches recent sales in the vicinity and finds properties which are ''comparable'' to the subject being appraised. The sales prices of these properties are used as a basis to begin the sales comparison approach.
Using knowledge of the value of certain items such as square footage, extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few), the appraiser adjusts the comparable properties to more accurately portray the subject property. For example, if the comparable property has a fireplace and the subject does not, the appraiser may deduct the value of a fireplace from the sales price of the comparable home. If the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.
In the case of income producing properties - rental houses for example - the appraiser may use a third approach to valuing the property. In this case, the amount of income the property produces is used to arrive at the current value of those revenues over the foreseeable future.
Reconciliation
Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or ''bidding wars'' that may adjust the final price up or down. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is: an appraiser will help you get the most accurate property value, so you can make the most informed real estate decisions.
