Purpose and Use of Appraisals
Appraisal — Appraisal is defined as the act or process of estimating value.
Consulting — Consulting is the act or process of providing information, analysis of real estate data, and recommendations or conclusions on diversified problems in real estate, other than estimating value.
Appraisers perform analyses and render opinions or conclusions relating to the nature, quality, value, or utility of specified interests in, or aspect of, identified real estate. Real estate appraisal involves selective research into appropriate market areas; the assemblage of pertinent data; the use of appropriate analytical techniques; and the application of knowledge, experience, and professional judgment to develop an appropriate solution to an appraisal problem.
The value estimated may be market value, insurable value, investment value, or some other properly defined value of an identified interest in real estate as of a given date. Valuation assignments may produce market value estimates of fee simple estates, leasehold estates, preservation easements, and many other interests.
In an appraisal assignment, the appraiser provides the client with an estimate of real property value which reflects all pertinent market evidence.
Consulting assignments include land utilization studies, supply and demand studies, economic feasibility studies, highest and best use analyses, and marketability or investment considerations that relate to proposed or existing developments.
In a consulting assignment, current market activity and evidence are studied to form a conclusion which may not focus on a specific value indication.
To avoid misunderstandings, it is important that the client and the appraiser determine at the outset whether the assignment is an appraisal or a consulting assignment.
Characteristics of Real Estate Appraising
A real estate appraisal is a supportable and defensible estimate of the value of specified property rights as of a given valuation date. Every real estate appraisal and appraisal report must state clearly the rights appraised and the valuation date. Therefore, while the objective of any appraisal is to estimate value, the particular value to be estimated must be specified. By far the most common and usual objective of real estate appraisal is to estimate market value. The type of value to be estimated in any appraisal dictates the data to be gathered and used in the appraisal, as well as the analytical valuation techniques to be employed.
Role of Appraisals and Appraisers
Appraisals are made because a client or employer has a decision to make, a question to answer, a choice to make, or a course of action to choose. An appraisal does not recommend or tell you what to do. It merely provides you with a supportable and defensible opinion of value. The nature of the question or decision determines what value is to be estimated and, therefore, the objective of the appraisal. The appraisal report should be a complete self-contained document that can stand alone on its own merits.
Purpose and Use of an Appraisal
The purpose of an appraisal is the stated reason and scope of an appraisal assignment, i.e., to estimate a defined value of any real property interest or to conduct an analysis or consulting assignment to real property decisions.
The purpose of an appraisal is established by the client. It points to the information that the client needs to answer specific questions pertaining to real property. When an estimate of value is required in an appraisal, the type of value sought must be defined at the outset. The defined value may be market value, insurable value, assessed value, use value, investment value, or another type of value. Because an appraisal provides a basis for a decision concerning real property, the use of an appraisal depends on the decision the client wishes to make.
An appraisal may be requested in a number of situations such as:
- Transfer of ownership
- To help prospective buyers set offering prices.
- To help prospective sellers determine acceptable selling prices
- To establish a basis in real property
- To establish a basis for real property exchanges
- To establish a basis for reorganizing or merging the ownership of multiple properties
- To determine the terms of a sale price for a proposed transaction
- Financing and credit
- To estimate the market value of a property as a whole (i.e., before a taking)
- To estimate the market value of the remainder after a taking
- To estimate the damages to a property created by a taking
- To estimate the market value of a property in contract disputes
- To estimate the market value of real estate as part of a portfolio
- To estimate the market value of partnership interests
- To estimate damages created by environmental violations
- To estimate damages created by environmental accidents
- Tax matters
- To estimate assessed value
- To separate assets into depreciable (or capital recapture) items such as buildings and non-depreciable items such as land
- To estimate the value of the real estate component of an estate plan which represents the foundation for future capital gains and inheritance taxes
- To determine inheritance and gift taxes Investment counseling and decision making
Getting Your Appraisal Is EASY As 1-2-3
Step 1: Call 305-792-7778 or fill out the Free Quote Request to get your cost & turn time.
Step 2: Schedule your appointment (Usually the same or next day).
Step 3: Get your appraisal by email (Usually the next business day after inspection).
A Real Estate Appraisal Is The Process Of Valuing Real Property…
The value typically requested is Fair Market Value. Real estate appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently. Not only that, but every property is different from the next, a factor that doesn’t affect assets like corporate stock. Furthermore, all properties differ from each other in their location – which is an important factor in their value. So a centralized auction setting can’t exist for the trading of property assets, such as exists to trade corporate stock (i.e. a stock market/exchange).
This product differentiation and lack of frequent trading, unlike stocks, means that qualified specialist are needed to advise on the value of a property via the appraisal process. The real estate appraiser usually provides a written report on this value to his or her client. These reports are used as the basis for mortgage loans, for settling estates and divorces, for tax matters, and so on. Sometimes the report is used by both parties to set the sale price of the property appraised. There are different types of reports available.
Full Single Family Home Appraisal Report
Click to see a sample of a full home appraisal report.This type of real estate appraisal report involves the home appraiser doing an interior and exterior inspection of the subject property. The appraiser is looking at the overall condition. For example, he/she is looking to see if the house has had recent upgrades to the roof, windows, kitchen, bathrooms, floors, A/C, etc. The appraiser also measures out the home to determine the exact square footage of livable area and garage area, if any.
They are also looking to see how many bedrooms and bathrooms the home has. This is important because some homes have enclosed garages or other areas that the homeowner considers a bedroom, but may not actually qualify as living area. The number of bedrooms and bathrooms is a large factor in choosing comparable sales.
The typical real property valuation report includes interior and exterior photos of the subject and exterior photos of at least three closed comparable sales.The final appraisal also includes a sketch of the subject home and a location map of the subject in comparison to the comparable home sales used in the report. See sample above.
Desktop Single Family Home Appraisal Report
Click to see a sample of a desktop home appraisal report. This type of real estate appraisal is done from the appraiser’s “Desktop”. In other words, the appraiser does not do an interior or exterior inspection of the subject home or the comparables, but makes an extraordinary assumption on the condition of the home based on what the homeowner tells the real estate appraiser or if there is a MLS listing on the subject with photos the appraiser can base it on that.
The research and comparables the appraiser uses is the same as the research the he/she would use for the full report. This type of report includes at least three comparable sales with exterior photos (If they are available from MLS). It also includes a location map of the subject in comparison to the comparable home sales used report. See sample above.
Desktop Condominium Appraisal Report
Click here to see a sample of a desktop condominium appraisal report. This type of real estate appraisal report is again performed from the appraiser’s “Desktop”. In other words the He/She does not do an interior or exterior inspection of the subject condominium or the comparables, but makes an assumption on the condition of the condo based on what the owner tells them or if there is a MLS listing on the subject with photos, the appraiser can base it on that.
The research and comparables the appraiser uses is the same as the research they would use for the full appraisal. This type of report includes at least three comparable sales with exterior photos (if they are available from MLS). It also includes a location map of the subject in comparison to the comparable condominium sales used in the report. See sample above.
Residential Land Appraisal Report
Click to see a sample of a residential land appraisal report. This type of real estate appraisal involves your appraiser performing an inspection of the subject land. He or She is looking at the location, view, external obsolescence, etc. The final document includes photos of the subject land and street scene. Photos of at least three closed comparable land sales are also included. It also includes a location map of the subject in comparison to the comparable land sales used in the report. See sample above.
Commercial Summary Appraisal Report
Commercial real estate appraisals typically contain a larger amount of information due to the complex nature of commercial real estate. See a sample complete summary appraisal report of a church. These reports state the identity of the client and any intended users, by name or type; state the intended use of the documents; summarize information sufficient to identify the real estate involved in the valuation, including the physical and economic property characteristics relevant to the assignment; state the property interest appraised; state the purpose of the appraisal, including the type and definition of value and its source; state the effective date of the real estate appraisal and the date of the real estate appraisal report; summarize sufficient information to disclose to the client and any intended users of the report the scope of work used to develop the real estate appraisal.
They also state all assumptions, hypothetical conditions, and limiting conditions that affected the analyses, opinions, and conclusions; summarize the information analyzed, the evaluation procedures followed and the reasoning that supports the analyses, opinions, and conclusions; state the use of the property existing as of the date of value and the use of the 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 the Subject; state and explain any personal departures from specific requirements of STANDARD 1 or 7 and the reason for excluding any of the usual real estate appraisal approaches; include a signed certification in accordance with Standards Rule 2-3 or 8-3. See sample above.
Replacement Cost Appraisal Report
Click to see a sample of a replacement cost home appraisal report. This type of real estate appraisal includes the home appraiser doing an interior and exterior inspection of the subject home. For this type of report, the appraiser is looking at the materials that were used to build the house. The condition of the house is irrelevant because the appraiser is determining what it would cost to rebuild the house brand new. This type of appraisal includes photos of the interior and exterior of the subject house, a sketch and the replacement cost calculations. See sample above.
Field Review Appraisal Report
Click here to see a sample of a field review appraisal report. A lender uses this form for the spot-check appraisal component of its quality control process. The field review report is intended to provide the lender/client with an opinion on the accuracy of the appraisal under review. The scope of work for this assignment is defined by the complexity of the report under review and the reporting requirements of this forms, including the following statement of assumptions and limiting conditions, and certifications.
If the review appraiser determines that the opinion of value in the report under review is not accurate, he or she is required to provide their own opinion of market value. The review appraiser is not required to replicate the steps completed by the original appraiser to be reliable and in compliance with the applicable appraisal development standards of the Uniform Standards of Professional Appraisal Practice. See sample above.
These are just some of the types of real estate appraisal reports we can offer you. Please call us at 866-533-7173 to find out which type of real estate appraisal report is right for you. If you would like a free quote on fee and turn-time, please fill out the form to your right or call us.