Ever wondered how appraisers come up with a reconciled opinion on value for the appraisal they just completed on your home? This article will give the layperson some insight into how this happens.
We must first identify the problem to be solved (the type of value to look for such as market value, insurable value, etc.), market value being the most common. We must also determine what we need to do to solve the problem (scope of work). After we do this, then we move on.
First, not all raters rate the same. This can be related to several things such as the appraiser’s knowledge, the appraiser’s experience, the appraiser is not technology literate, the appraiser does not want to change and other reasons. For these and other reasons, you will never get 5 raters to come up with the same rating opinion (ratings). We have to, however, be in the “ballpark”. So here we go.
Subject Data
Let’s start with the subject. It is a rated house. We visited the house, measured to get square footage and sketches, took minimal (front, back and street) photos. These days we are often asked to take interior photos too. We visually inspect inside and out for maintenance, quality, room additions, upgrades and many other factors. We look at the subject’s environment and its positive and/or negative aspects such as power lines, railroads, aircraft flight paths, the overall attractiveness of the environment, and more. Please note, that when the term “inspection” is used, it refers to visualization because the assessor is not the inspector, which is clearly stated in most appraisers’ addendums. It is on me.
Sales Comparable Approach
After collecting all the necessary information and data for the subject. The appraiser turns his attention to finding a suitable comparison. Comparable are homes that have recently been sold in the subject subdivision or are close to the subject generally no more than 1 mile away. Comparable can also be in the form of listings, houses that are on the market for sale but have not been sold. These comps or comps as they are affectionately called should be similar to the subject in terms of square size, design and amenities. Any differences in any of these items require what we call adjustments to be made to the comps. Adjustments can be based on quality or quantity (qualitative or quantitative), can be a percentage or dollar amount. Adjustment provides the company with an adjusted selling price on which we base our assessment. Some of us are not all raters, also use charts and graphs to support our adjustments.
Cost Approach
The appraiser should also consider land value, depreciation and repair costs which are only accurate when we appraise new home construction.
Income approach
Income is only considered when the home being appraised is a rental property and provides income. In this approach, operating income and expenses, the gross rent multiplier is calculated.
There is much more that goes with and is considered in the last two approaches to value. However, we will continue with the main value approach for residential homes which is the Comparable Sales Approach. After adjustments are made to the sales comparability, we form a value opinion, review and submit our report on a form called URAR (uniform housing appraisal report).
It is important as an assessor before we submit any report, that we are in compliance with the USPAP (uniform standards of assessment practice). This is what we assessors must take into account in all of our reports and ensure that we comply with the standard in all approaches to value opinions that we may use.
This article provides consumers with a brief overview of how we as appraisers give our opinion on the value of residential real estate. However, there is much more to analyzing the data collected and preparing accurate and credible assessment reports.
Copyright 2010