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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, taking photographs, making a sketch, assessing any amenities, special
features, and condition of the property.
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 appraiser will use one or all of these approaches
to value, depending on the type of property and assignment.
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. The appraiser then
estimates depreciation to reconcile the approach to a final value.
The Sales Comparison Approach to value is most often used in residential appraisals, and uses market data
to determine the estimate of value. It compares prices paid for similar properties in residential areas
similar to the subject property. 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 area,
location, condition, lot size, and utilities.
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 ownership, 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.
Here is a brief description of some of the most popular residential appraisal types:
This form is utilized for single family dwellings and requires an interior and exterior inspection. It contains
all three approaches to value, however, typically the income approach is not applicable to single family
residences and therefore, not developed.
This form can be used for single family, multi-family and condominiums. It can be completed on an interior
and/or exterior basis depending on the client's needs. It contains only the Sales Comparison Approach. Due
to its limited reporting format, the cost and income approaches are not included.
This form is completed on properties having a condominium form of ownership. An interior/exterior inspection is
required. In this reporting format only the Sales Comparison Approach is developed. This type of ownership
does not include a land value, but rather a percentage of common area. Therefore, the cost approach is not
applicable. The income approach is typically not applicable in this type of property.
This form is completed on investment properties containing 2-4 units. It requires an interior/exterior inspection
and all three approaches to value are developed. It includes three competitive listings as well as a rent survey
analysis. A Rent Schedule and an Operating Income Statement (Form 216) are also completed.
This form is utilized to estimate the anticipated sale price for a relocating employee's primary
residence. Requiring an interior/exterior inspection, the report contains only the Sales Comparison Approach.
It includes the analysis of three competitive listings and is completed on single family dwellings
including those having a condominium form of ownership.
This form is a summary appraisal report for 1-4 family properties that can be completed with an interior
and/or exterior inspection. It can be completed on single and multi-family properties as well as condominiums.
This limited form contains only the Sales Comparison Approach
This form is utilized for vacant land. It contains only the Sales Comparison Approach. It is typically
completed on residential land; however, at the request of the client, it can be completed on commercial land.
Private Mortgage Insurance or PMI is the supplemental insurance that lenders require buyers to purchase
when the amount being loaned is more than 80% of the value of the home. Usually the additional payment is
added into the monthly mortgage payment. PMI becomes unnecessary when the remaining balance of the loan drops
below this 80% level.
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