PRIME REAL ESTATE SERVICES

Learn more about the THE APPRAISAL PROCESS

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The 7 steps of the appraisal process

1. Identify the appraisal problem.

2. Determine the scope of work.

3. Analyze the property use by selecting the appropriate market and analyze appropriate market conditions.

4. Collect and analyze data to determine the most appropriate approach (es) to value. 

5. Applying 3 approaches to value. Sales Comparison, Income Capitalization, Cost Approach . 

6. Reconciliation of valuation indicators are developed a final opinion of value is derived.

7.  Communicating the assignment results.

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1. The appraisal process starts with the "Identification of the Problem".

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We need to know who the client(s) is/are and the purpose or intended use of the report. Additionally, we need to know what the effective date of value will be, whether you need a current market value or a value of a certain date. For example, a date of death would be a date in the past for estate planning or tax purposes. A date in the future would be for feasibility analysis, like a potential development project.

We will then need to gather the characteristics of the property that is being appraised and if there will be an assumptions, like an extraordinary assumption or hypothetical condition.  

As defined by the appraisal institute:

 

Extraordinary

Appraisal Foundation An assignment specific assumption as of the effective date regarding

uncertain information used in an analysis, which if found to be false, could alter the

appraiser’s opinions or conclusions.

 

Hypothetical

A condition, directly related to a specific assignment, which is contrary to what is known by

the appraiser to exist on the effective date of the assignment results, but is used for the

purpose of analysis.

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2. The "Scope of Work" is then determined.

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The spoke of work can remain consistent but is considered an ongoing process. In many instances the spoke of work changes through the appraisal process. The changes in an appraisal’s scope of work allows for a deeper and more credible analysis for greater assignment results.

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Property Description & Data Collection 

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The property description is gather by either an exterior and interior inspection or an exterior inspection alone. An appraiser gathers material information of the property during the appraisal and gathers the data of the improvements from creditable sources, like building department, assessor’s office, and tax records.

The subject’s market data is also gathered. Characteristics of the subjects region, city, neighborhood, and market are collected.

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3. Data Analysis 

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Three vital component of the appraisal process. ​​

1.  Determine factors of the subject property that may be known or unknown that may affect the                           marketability. An example on a known factor would be caused by external obsolescence due to the subject property’s location near a busy highway. An example of an unknown factor that may have an impact on marketability is an unfavorable easement that is only stated on municipal tax maps.

2. Determine factors in the subject’s market that may be known or unknown that may affect the                          marketability of the subject. An example of known and unknown factors that affect marketability is the    subject location within a historic district. In some markets, like New York City, if a property is located in a  historic district any change to the façade of the property must be approved by the land mark preservation commission.

3. Supply and demand analysis is completed in this stage to determine the absorption rate for properties like the subject. This determines the length of time the subject is likely to sit on the market.

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Analysis of these factors are important determinants that can directly and indirectly impact the value of the property being appraised.

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Highest & Best Use Analysis 

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Completing a highest and best use analysis of the subject property is an important procedure to determining the value.

The highest and best use analysis determines the most reasonable and legally permissible use that is most probable, financially feasible, and appropriately supported   of vacant or improved land that results in the highest value.

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Comparable property data

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Researching and collecting data from recent sales and gathering their accompanying listing information if available to verify data and sources. At this stage many appraisers will reach out and connect with the listing brokers that have knowledgeable insight of the transactions and obtain facts about the sales that perhaps were not reported on the initial listing offering.

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4. Analyze the collected data to determine the appropriate approaches to value

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5. Applying the 3 appraisal approach to value ​

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1. Sales comparison approach

2. Income approach​

3. ​Cost approach

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The appraiser can use 1 of 3, 2 of 3, or all 3 approaches to value depending on the type of valuation and property, the intended use, and availability of information and its quality to obtain an opinion of market value.

 

6. Reconciliation of Value

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After analyzing all of the collected data and applying the 3 approaches to value the appraiser will review the outcome of the results and weigh each approach and determine the appraised value conclusion for the subject property on the effective date of valuation, whether current, retrospective, or prospective.

 

7.  Communicating the assignment results

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The appraiser will then deliver the appraisal. The opinion of value can be delivered in several formats. An oral report is simply a verbal statement of the appraiser’s opinion of value. In most cases the appraiser will deliver the report in an easily readable and understandable format, via a form report or narrative format. ​