I am often asked, “What does a real estate appraiser do?” This can be a difficult question to answer because appraisers often perform a wide range of services, and those services can vary in relationship to the scope of work and reporting options. In this article I will answer the question in general terms regarding what an appraiser does to produce the most typical appraisal report.
An appraiser’s aim is most often to provide an unbiased opinion of real estate market value or, in other words, to estimate the most probable selling price of property given defined conditions. The appraisal report is usually written and includes, but is not limited to, the following information:
1. A description of the property including its key marketability features.
2. An analysis of current use and possible other more valuable uses.
3. A summary of information analyzed including local market conditions and procedures followed.
4. A summary of approaches to value (most commonly a sales comparison) and arguments in support of the value conclusions.
5. And finally, statements of assumptions, certifications, intentions, and other disclaimers.
Since licensed or certified appraisers are expected to uphold the public trust, they are held to high state and federal regulatory standards of ethics, record keeping, competency, scope of work, and general practice.
In a typical home appraisal, the inspection represents only a small portion of the appraiser’s work. The inspection usually includes a walkthrough of the property that is similar to a prospective buyer observing the condition of fixtures and finishes, features, layout, and defects of the property. The appraiser will usually take pictures and verify information like measuring the square footage.
Appraisers are not home inspectors. Consequently, assumptions are made about the structural and mechanical portions of the property based on visual observation, interview information, and permit data. Special inspections may be requested if there are significant condition uncertainties (like an old roof) that could harm the credibility of a value opinion. External marketability factors (like busy roads or views) are also considered.
Homeowners will often ask when the inspection is done, “What do you think my home is worth?” At this point, appraisers usually will not have a conclusion of value and, depending on the type of assignment, may not be able to discuss value specifics with the homeowner.
After the inspection, the appraiser typically reviews and lists recent sales of similar homes (called sales comparables) but, depending on the approaches to value used, the appraiser might also employ other types of comparables specific to income or cost valuations. Comparables are carefully chosen to highlight all of the subject home’s features.
Since finding a comparable exactly like the subject property happens only rarely and one sales price does not represent a market value, appraisers use bracketing and adjustments to narrow a value conclusion. The sales price of a comparable property that is overall superior to the subject would set the upper limit of value. Conversely, an overall inferior comparable property would set the lower end of the value. Other comparable properties in the middle might be the strongest indicators and used to help the appraiser add evidence of the subject’s value, isolate key value-related features, and demonstrate support for adjustments that further narrow the probable range of value for the property.
Depending on the scope of the assignment, the appraiser will likely drive-by view each comparable, interview agents or other parties to the sales, and otherwise gather and verify as much information about the properties to ensure the most reasonable comparisons as they relate to the subject. When all of the research is completed and any imperfect data are reconciled, the appraisal report is finalized by the appraiser and delivered to the client.
The amount of time spent to produce an appraisal is dependent most on the quantity and quality of the real estate data and on the scope of work necessary for credible results. The more unique a property is in relation to the available comparable sales, the longer it can typically take and the more important it becomes that the appraiser is highly trained and experienced.
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