The Appraisal Process
The appraisal process begins with the order. After scheduling the property inspection with the homeowner the data gathering process begins. Specific information about the property such as real estate taxes, owner of public record, last sale transactions and assessment information are all examples. The appraiser also gathers general information about the local real estate market and current trends. The property inspection concludes the data gathering process for the subject property.
There are three approaches to determine a value estimate that the appraiser can use. The most commonly used is the sales comparison approach. This approach uses similar properties in the subject’s vicinity that have recently sold. Adjustments are made for difference between these comparable sales and the subject property, and the reconciliation process derives an estimate of value.
The cost approach is another way to determine an estimate of value. The appraiser uses cost manuals and knowledge of local building costs and modifiers to determine how much a property would cost to reproduce or replace. This approach to value uses accrued depreciation, economic life and effective age in determining an estimate of value.
The third approach to value is called the income approach. If the property being appraised generates income for its owner, that income contributes to the value of the property. Examples of such properties include duplexes and apartment buildings. An estimate of value is derived from the income producing potential of the property.
Any of these approaches to value can be used to determine a value estimate of a property, and they are often used in conjunction with each other to support value. It is up to the appraiser to decide which of the approaches of value to include in an appraisal report.
Any practicing appraiser is bound to know and follow USPAP. Appraisers are tested on it at each level of licensure, and must take continuing education courses on it every two years. USPAP is an acronym for the Uniform Standards of Professional Appraisal Practice. It is published and maintained by the Appraisal Standards Board, which is a non-governmental entity appointed by Congress to set appraisal standards. Ethics Rules, Competency Rules, Advisory Opinions and Appraisal Standards comprise USPAP, which is updated periodically to reflect changes in the real estate and appraisal world.