“Appraisal – The act or process of developing an opinion of value; an opinion of value.” — USPAP, 2020-2021 ed.
An Appraisal based on the “sales comparison approach” is an unbiased opinion of what a buyer can expect to pay, or a seller can expect to receive for a piece of real estate.
Appraisers help in obtaining an opinion of value of a property for loan purposes, estate or financial planning or sales negotiations.
There are many factors in determining the most accurate value in real estate. Initially, the client identifies the subject property and the intended use of the appraisal. Based on this information, the appraiser then determines the appropriate scope of work for the appraisal, which includes the extend of research and detail given in the report.
Accordingly, next the appraiser researches county and munical records, Multiple Listing Service (MLS) records and other data sources for information and documentation about the subject property and its market area.
Next, the appraiser schedules an interior inspection if required. Some appraisals do not require interior inspections, but generally speaking, opinions of value of a property can be more accurate if the appraiser completes an interior inspection.
On site, the appraiser inspects the property, recording measurements and data about the home’s features and condition. The appraiser uses tools like laser measuring devices, cameras and sketching software to insure accuracy. Additionally, other buildings located on the site and exterior features are also included in the inspection. Lastly, information about the neighborhood and other external features like views, topography, roads, parks and open space and natural features ares noted and recorded for further analysis.
The property inspection is just one part of a complete appraisal. Extensive offsite research is completed to evaluate the property in comparison to other “comparable sales” in the subject’s area. “Comparables” are recently sold or listed properties that have have similar size, quality, age and amenities as the subject property and are located in the subject’s market area. Occasionally, if the subject is rather unique or if there were few recent sales in the property’s market area, comparables may be located in similar or competing neighborhoods further away from the subject.
Other approaches to value are the cost approach and the income approach.
An appraiser may develop a value opinion of a property based on the cost approach if the home is newer and has little or no depreciation.
The income approach is most often used in appraisals that are rented out to tenants, where income is a factor in the deicsion -making process of buyers and sellers.
After data collection and analysis, the appraiser develops an opinion of value using one or more approaches to value. Final reconciliation involves evaluating, weighing and selecting from among alternative conclusions to reach a final opinion of value of the property.
A complete appraisal report includes the appraiser’s opinion of value, her findings, conclusions and explanations, a description of your property, neighborhood maps and aerial maps, complete floorplan sketches, county records, market statistics analysis and much more.
You can read more about appraisals, the rules, process and more on the Appraisal Foundation’s website.
