The Appraisal Process

The appraiser uses a well defined series of steps to reach the final estimate of value for your property.

The process begins with the Inspection. The appraiser goes out to the property to do a physical inspection of the site, gathering measurements, making a sketch, assessing any amenities & condition of the property. The surrounding neighborhood is examined as well.

The next, and most time consuming step is the application of the three approaches to value. These are the Cost Approach, Sales Approach, and Income Approach.

The Cost Approach to value assumes that no one would pay more for a property than it would cost to buy the land and construct the building. The appraiser uses local building costs, labor rates and other factors to determine how much it would cost to build a property like the one being appraised. Depreciation is then estimated for a final estimate of value by the Cost Approach. The Cost Approach to value is most applicable to new construction and unique properties.

The Sales Comparison approach to value uses market data to determine the estimate of value. It compares prices paid for similar properties in a similar geographic location. Usually a comparison grid is used to show the differences between the subject and each comparable sale property. Adjustments are made to reflect such items as gross living, or building area, location, condition, lot size, traffic volume, flow, and special financing concessions.

The Income Approach to value is used for income producing properties. It bases the estimate of value on the expectation of benefits to be derived from possession, operation and/or capital gain at resale of the property. The income approach includes the net income from the operation of the property less expenses to arrive at a final value after utilization of a capitalization rate.

The final step to the appraisal process is the Reconciliation. The appraiser examines all applicable approaches to value and determines the final estimate of value, based on the most applicable approach.

Appraisal Types

Here is a brief description of the commercial appraisal types as defined by the Uniform Standards of Professional Appraisal Practice 2003:

Self-Contained Appraisal Report - describes

1. state the identity of the client and any intended users, by name or type;
2. state the intended use of the appraisal;
3. describe information sufficient to identify the real estate or personal property involved in the appraisal, including the physical and economic property characteristics relevant to the assignment;
4. state the property interest appraised;
5. state the purpose of the appraisal, including the type and definition of value and its source;
6. state the effective date of the appraisal and the date of the report;
7. describe sufficient information to disclose to the client and any intended users of the appraisal the scope of work used to develop the appraisal;
8. state all assumptions, hypothetical conditions, and limiting conditions that affected the analyses, opinions, and conclusions;
9. describe the information analyzed, the appraisal procedures followed and the reasoning that supports the analyses, opinions, and conclusions;
10. state the use of the property existing as of the date of value and the use of the real estate or personal property reflected in the appraisal; and, when the purpose of the assignment is market value, describe the support and rationale for the appraiser's opinion of the highest and best use of real estate or personal property;
11. state and explain any personal departures from specific requirements of STANDARD 1 or 7 and the reason for excluding any of the usual appraisal approaches;
12. include a signed certification in accordance with Standards Rule 2-3 or 8-3

Summary Appraisal Report - summarizes

1. state the identity of the client and any intended users, by name or type;
2. state the intended use of the appraisal;
3. summarize information sufficient to identify the real estate or personal property involved in the appraisal, including the physical and economic property characteristics relevant to the assignment;
4. state the property interest appraised;
5. state the purpose of the appraisal, including the type and definition of value and its source;
6. state the effective date of the appraisal and the date of the report;
7. summarize sufficient information to disclose to the client and any intended users of the appraisal the scope of work used to develop the appraisal;
8. state all assumptions, hypothetical conditions, and limiting conditions that affected the analyses, opinions, and conclusions;
9. summarize the information analyzed, the appraisal procedures followed and the reasoning that supports the analyses, opinions, and conclusions;
10. state the use of the property existing as of the date of value and the use of the real estate or personal property reflected in the appraisal; and, when the purpose of the assignment is market value, summarize the support and rationale for the appraiser's opinion of the highest and best use of real estate or personal property;
11. state and explain any personal departures from specific requirements of STANDARD 1 or 7 and the reason for excluding any of the usual appraisal approaches;
12. include a signed certification in accordance with Standards Rule 2-3 or 8-3

Restricted Use Appraisal Report - states

1. state the identity of the client by name or type;
2. state the intended use of the appraisal;
3. state information sufficient to identify the real estate or personal property involved in the appraisal;
4. state the property interest appraised;
5. state the purpose of the appraisal, including the type and definition of value and its source;
6. state the effective date of the appraisal and the date of the report;
7. state the extent of the process of collecting, confirming, and reporting data or refer to an assignment agreement retained in the appraiser's work file, that describes the scope of work to be performed.
8. state all assumptions, hypothetical conditions, and limiting conditions that affected the analyses, opinions, and conclusions;
9. state the appraisal procedures followed, the value opinion(s) and conclusion(s) reached and reference the work file;
10. state the use of the property existing as of the date of value and the use of the real estate or personal property reflected in the appraisal; and, when the purpose of the assignment is market value, state the support and rationale for the appraiser's opinion of the highest and best use of real estate or personal property;
11. state and explain any personal departures from specific requirements of STANDARD 1 or 7; state the exclusion of any of the usual appraisal approaches; and state a prominent use restriction that limits use of the report to the client and warns that the appraiser's opinion and conclusions set forth in the report cannot be understood properly without additional information in the appraiser's work file;
12. include a signed certification in accordance with Standards Rule 2-3 or 8-3

The difference between the Self-Contained, Summary, and Restricted Use appraisal formats is the level of data contained in the report.