Although appraising is not an exact or a precise science, the key to an accurate appraisal lies in the methodical collection and analysis of data. The appraisal process is an orderly set of procedures used to collect and analyze data to arrive at an ultimate value conclusion. The data are divided into two basic classes:
- General data, which covers the nation, region, city, and neighborhood. Of particular importance is the neighborhood, where an appraiser finds the physical, economic, social, and political influences that directly affect the value and potential of the subject property.
- Specific data, which covers details of the subject property as well as comparative data relating to costs, sales, and income and expenses of properties similar to and competitive with the subject property.
Once the approaches have been reconciled and an opinion of value has been reached, the appraiser prepares a report for the client. The report should:
- identify the real estate and real property interest being appraised,
- state the purpose and intended use of the appraisal,
- define the value to be estimated,
- state the effective date of the value and the date of the report,
- state the extent of the process of collecting, confirming, and reporting the data,
- list all assumptions and limiting conditions that affect the analysis, opinion, and conclusions of value,
- describe the information considered, the appraisal procedures followed, and the reasoning that supports the report’s conclusions; if an approach was excluded, the report should explain why,
- describe (if necessary or appropriate) the appraiser’s opinion of the highest and best use of the real estate,
- describe any additional information that may be appropriate to show compliance with the specific guidelines established in the USPAP or to clearly identify and explain any departures from these guidelines, and
- include signed certification, as required by the USPAP.
Sellers and real estate licensees may not agree with the appraiser’s value and may argue that it is lower than they think that it should be. However, since most appraisals are ordered by lenders who base their loan on this value, the appraiser must be able to back up the appraisal report with quantifiable conclusions; in the event of a loan default, at what value can the property most probably be sold for the lender to recover the remaining loan balance?
