By: Victor A. Torres, MAI
The real estate appraisal process can be overwhelming, especially since it often represents one of the final steps before closing a loan or completing a transaction. Property owners are understandably anxious to receive the appraiser's opinion of value, which is a critical component in a real estate transaction. This guide provides a clear and concise summary of what the appraisal process looks like from the appraiser’s perspective.
1. Initial Data Collection
When an appraiser is engaged for a specific property, the first step involves gathering as much relevant data as possible from the client, property contact, and/or property owner. This typically includes site plans, floor plans, leases, boundary surveys, lists of recent renovations or capital improvements, rent rolls, profit and loss statements, Phase I environmental reports, and more. While some of these items are not mandatory, providing them is highly recommended to produce a more credible and accurate appraisal. The specific documents required may vary depending on the property type. Simultaneously, the appraiser will coordinate with the property representative to schedule an on-site inspection.
2. Property Inspection
It’s important to clarify that an appraiser’s inspection is not the same as a home or property inspection conducted by an independent professional. The appraiser’s inspection is focused on understanding the subject property, assessing its overall condition, confirming data provided by the owner, and checking for any functional obsolescence or deferred maintenance items, among other things.
3. Neighborhood and Regional Analysis
After collecting the property data and completing the on-site inspection, the appraiser conducts a thorough analysis of the neighborhood and regional market. This research is crucial for understanding the broader economic, social, and environmental factors that may impact the property's value. The appraiser examines local market trends, demographic data, and any recent sales or listings of comparable properties. This contextual analysis, in line with USPAP standards, helps ensure that the appraisal reflects a comprehensive understanding of the property's location and physical characteristics, ultimately leading to a more accurate and credible valuation.
4. Appraisal Process and Approaches to Value
After gathering all necessary information, the appraiser analyzes the property's location, physical characteristics, and highest and best use. The three primary approaches to value are:
Cost Approach (CA): This approach is typically used for new developments or special-purpose facilities where comparable improved properties are lacking. It estimates the cost to replace or reproduce the improvements, minus depreciation, plus the land value.
Sales Comparison Approach (SCA): This approach involves selecting comparable properties based on the subject's characteristics and Highest and Best Use. The appraiser adjusts these comparables to reflect differences with the subject property to estimate its value. Comparables may not always be located in the immediate market area, especially if the subject property is unique, requiring the appraiser to look regionally or even nationally for appropriate comparisons.
Income Capitalization Approach (ICA): This method is mainly used for income-producing properties. The appraiser estimates market rent, deducts vacancy and expenses to determine the Net Operating Income (NOI), and then applies a capitalization rate (derived from comparable sales or surveys) to estimate the property's value.
5. Reconciliation and Final Value Conclusion
After developing the applicable approaches to value, the appraiser reconciles the results to arrive at a final value conclusion. The appraiser applies professional judgment to determine which approach should carry the most weight, considering factors such as the specific property type, availability and reliability of data, and current market conditions, among other relevant characteristics.
6. The Appraisal Report
Once the analysis is complete, the appraiser finalizes the appraisal report, which is typically delivered to the client in PDF format. The report includes detailed information about the property, the analysis conducted, and the final value conclusion. It is important to note that the format and content of the report may vary depending on the type of appraisal report requested by the client. For example, a Restricted Appraisal Report provides a more concise summary, while an Appraisal Report offers a more detailed and comprehensive analysis. After receiving the report, the client may review it and request reconsideration if they believe a requirement was not met, if there are discrepancies with USPAP, or if new information comes to light.
Understanding USPAP Compliance
The appraiser must comply with the Uniform Standards of Professional Appraisal Practice (USPAP), which is designed to promote public trust in the appraisal process. USPAP requires appraisers to develop and communicate their analyses, opinions, and conclusions in a manner that is clear, meaningful, and not misleading to the intended users. On the other hand, when a broker provides an "appraisal report" as part of their role as a sales broker, they are not required to adhere to USPAP standards. As a result, broker opinions of value often lack the same level of accountability and rigor as those prepared by licensed appraisers. We strongly recommend that clients seek out a licensed appraiser, particularly one with an MAI or SRA designation, to ensure a reliable and professional valuation.
Final Thoughts
The appraisal process involves multiple steps, including data collection, inspection, analysis, and reporting. The complexity and duration of the process can vary depending on the property type, the scope of work, the availability of data, and the requested turnaround time. Based on data available online, typical residential appraisal fees range from $300 to $1,000, while commercial appraisals can range from the mid-$ 1,000 to $10,000+ depending on the complexity and the scope of work.
About Bluemark Valuation Advisors
Bluemark Valuation Advisors is a privately owned appraisal company dedicated to providing top-quality commercial and residential appraisal services, including reports, reviews, and portfolio valuations. For more information, contact us at 813-330-1339 or info@tampavaluation.com.
Meet Our Founder – Victor A. Torres, MAI
Victor A. Torres, MAI, is the founder of Bluemark Valuation Advisors and a highly experienced Senior Appraiser. With a background in providing exceptional commercial appraisal services across Puerto Rico, Georgia, South Carolina, and Florida since 2012, Victor specializes in a wide range of property types, including residential subdivisions, multi-tenant retail facilities, and industrial properties. Victor holds a Bachelor's degree in Accounting, is a State-Certified General in Florida and Puerto Rico, and is a respected Member of the Appraisal Institute.
Comments