About the Valuation of Property
What Is an Appraisal?
Real estate appraisers are experts in the valuation of property. As such, we use our knowledge and experience to help people make informed decisions about real estate. The most common type of appraisal is a market value estimate, which is used to determine the fair market value of a property. However, appraisers can also provide a wide range of other services such as consultation, and decision-making.
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Appraisal:
- (noun) The act or process of developing an opinion of value; an opinion of value.
- (adj.) Of or pertaining to appraising and related functions such as appraisal practice or appraisal services.
Source: USPAP
An appraisal is also based on selective research into appropriate market areas such as:
- the assemblage of pertinent data,
- the application of appropriate analytical techniques, and
- the knowledge, experience, and professional judgment necessary to develop an appropriate solution to a problem.
The Purpose of an Appraisal
An appraisal is an opinion of value used to make real estate decisions. The value most commonly sought is market value, which is the price a property would likely sell for in an open market. However, other concepts of value, such as investment value or rental value, may be appropriate depending on the client’s needs.
Reasons for an Appraisal
Transfer of Ownership:
- To help prospective buyers decide on offering prices.
- To help prospective sellers determine acceptable selling prices.
- To establish a basis for the exchange of real property.
- To establish a basis for reorganization for merging the ownership of multiple properties.
- To determine the terms of a sale price for a proposed transaction.
Financing and Credit:
- To estimate the value of security offered for a proposed mortgage loan.
- To provide an investor with a sound basis for the purchase of real estate mortgages, bonds, or other types of securities.
- To establish a basis for a decision regarding the insuring or underwriting of a loan on real property.
Just Compensation in Condemnation Proceedings:
- To estimate the market value of a property as a whole before the taking.
- To estimate the market value of the remainders after the taking.
- To estimate damages to a condemned property.
Tax Matters:
- To estimate the assessed value.
- To separate depreciable (or capital recapture) assets such as buildings from non-depreciable assets such as land and estimate applicable depreciation (or capital recapture) rates.
- To determine gift or inheritance taxes.
- To estimate the value of preservation easements.
Appraisals May Also Be Requested:
- To set rent schedules and lease provisions.
- To determine the feasibility of a construction or renovation program.
- To help corporations or third-party companies purchase the homes of transferred employees.
- To serve the needs of the insured, insurer, and adjuster.
- To aid in corporate mergers, issuance of stock, or revision of book value.
- To estimate liquidation value for forced sale or auction proceedings.
- To counsel a client on investment matters, including goals, alternatives, resources, constraints, and timing.
- To advise zoning boards, courts, and planners, among others, regarding the probable effects or proposed actions.
- To arbitrate between adversaries.
- To determine supply and demand trends in a market.
- To determine the status of real estate markets.
Types of Appraisals
The Uniform Standards of Professional Appraisal Practice (USPAP), which are the state license law requirements for appraisers, governs the types of reports that appraisers can complete. The two types of appraisal reports are explained below:
Appraisal Report
This is a narrative or form report developed with content consistent with the intended use of the appraisal. This report, at a minimum, summarizes the information analyzed, valuation methods and techniques employed, and reasoning that supports the opinions and conclusions of the appraiser(s).
Restricted Appraisal Report
This is an abbreviated report that is usually a brief letter with no supporting data included. Opinions and conclusions stated in the report must be supported by data and analysis in the appraiser’s work file.
The Valuation Process
Although the characteristics of properties differ widely, most appraisal problems can be solved through a systematic valuation process, which includes:
- Defining the problem.
- Planning the necessary steps to solve the problem.
- Making sure the data involved are acquired, classified, analyzed, interpreted, and converted into an appropriate estimate of value.
- Employing the valuation process to provide the answer to a client’s question about real property value. This process leads an appraiser from fully identifying the particular problem to reporting its solution to the client.
Each real property is unique, and many different types of value can be estimated for any single property. The most typical appraisal assignment is undertaken to estimate market value, and the valuation process contains all the steps needed in that type of assignment. However, the valuation process also provides the framework within which any other defined value can be estimated. Furthermore, conclusions in consulting assignments often necessitate the derivation of value estimates through the application of the valuation process.
The valuation process is accomplished by following specific steps, the number of which depends on the nature of the appraisal assignment and the data available to complete it. In all cases, however, the valuation process indicates the pattern to be followed in performing market research and analysis of data, in applying appraisal techniques, and in integrating the results of these analytic activities into an estimate of defined value.
Real Estate Associations:
Local/Regional Resources
Indiana:
Kentucky:
National Resources:
- Beacon – Local Government GIS Directory
- BLS-LQ – Site to Get Location Quotient (For Economic Base Analysis)
- CBRE – Data Report
- Commercial Source – National MLS
- Credit Risk
- Cushman/Wakefield – Data Reports
- St. Louis Federal Reserve
- US Census
- Economagic – Economic Data
- Google Earth