Steps in the Appraisal Process

Identification of the Problem

Client and intended users | Intended use | Purpose of the assignment | Effective date of the valuation | Relevant Characteristics of the property | Assignment Conditions

Scope of Work Determination

The scope of work requested by the client impact things such as; Full interior inspection with sketch of house, Exterior Inspection, Desktop appraisal with no inspection, and other variations. The scope of work is most often impacted by what you need the appraisal for. For lending purposes, typically the lender will want a Full interior inspection w/ sketch. For a Pre-Listing appraisal a desktop appraisal might be all that is needed.

Data Collection and Property Description

Market Data: This includes an analysis of the subject's market area. Depending on the scope of the assignment, I will typically create a graph showing median prices for homes in the subject's market area. I determine whether prices are increasing, decreasing or generally stable. Market Data collection also takes into consideration broader characteristics of the region and city. Things such as employment rates, property mix and economic trends are all analyzed.

Subject Property Data: This is the part that most homeowners are the most familiar with. Information about the property being appraised (Subject) may be gathered from an onsite inspection, an inspection from the street, or no physical inspection at all. 

If the appraiser is coming to your home, here are some things to consider:

1) The appraiser will typically measure the house to make sure the size of the home as reported on County Tax records is accurate. Pictures of the exterior of the home will be taken.

2) Typically the appraiser will need to enter each room in the house and take a photo. If the client is a third party, such as a lender, the photos allow the client to see what the subject property looks like, what condition its in and what quality level it is. The appraiser is the eyes, ears and nose for the Lender.

3) The home doesn't need to be perfectly staged,with every dish washed and every bed made. I look at the house as if it were vacant and professionally cleaned.

4) If you have dogs its a good idea to keep them in their kennel or someplace where its not jumping all over the appraiser. Its hard to focus on the house if the dog is trying to welcome this new stranger into the home.

  Data Analysis

Market Analysis: This includes the creation of market graphs showing median price trends in the market area, median DOM trends and a variety of other trends that help determine if the market is Increasing, Decreasing or stable.

Highest and Best Use Analysis: The appraiser will look at the site as if it were vacant land and come to a conclusion what the highest and best use for the site is. In most cases, the highest and best use is its current use. 

Site Value Opinion

Most clients want the appraiser to provide an opinion of Site Value. This helps the client determine the contribution of the improvements (house) to the overall value of the property. Sometimes referred to as the Land to Value Ratio.

Application of the Approaches to Value

There are 3 possible approaches to establish market value of a property. They are:

Sales Comparison Approach: This is what most people are familiar with. The appraiser identifies similar properties that have sold, referred to as "Comparables or Comps", applies adjustments for differences between the comparable and the subject property and derives an opinion of value.

Cost Approach: The cost approach is most applicable with new construction but can be used with any single family or multi-family property. It is completed by estimating the site value and then estimating the cost to build new minus depreciation. The final step is to add the site value to the depreciated cost to build new. That number would be the value opinion via the cost approach.

Income Approach: The income approach is the process of determining the value of a property based on the income it is able to produce as a rental property. This approach is typically used when doing a multi-family appraisal. It is rarely used in the completion of a single family or condominium appraisal.

Reconciliation of Value Indications and Final Opinion of Value

The appraiser should take everything into consideration in this step, including: Scope of Work, Property Features, Market conditions, and the Approaches to Value that are relevant. This reconciliation process will produce the Final Opinion of Value.