TYPES OF APPRAISALS

 
Full Appraisal | Direct Comparison Approach | Cost Approach to Value | Reconciliation
Drive-by Appraisal | Desktop Appraisal | Rental Estimates

Full Appraisal:

This is a form report that summarizes all the salient facts that are relevant to the property that is being appraised.  
The appraiser will conduct an interior and exterior inspection of the subject property noting all the pertinent data.  Market value is derived in conjunction with market data and market analysis.

In arriving at a market value for a property two methods of valuation are utilized in a full appraisal.  The first is the Direct Comparison Approach to value and the second is the Cost Approach to value and the values by the two approaches are reconciled to establish a market value for the property.

Return to types of appraisals
 
 

Direct Comparison Approach:

A method of appraising or valuing real property based on the principle of substitution (comparison). The appraiser using this method will compare the property purchase price with the purchase price for similar properties. The three main steps are:

1.  Locate comparable properties (properties with the same “highest and best use”) that have sold recently, usually within the past six months, in arm’s-length transactions. This excludes certain sales, such as bankruptcy or foreclosure sales, sales by the government, sales between relatives, and so on.  Adjust the contract sales price to an effective sales price, considering unusual seller concessions and changes in market conditions from the time of sale.

2.  Compare these properties with the subject property and make all necessary adjustments in the sales prices for any significant differences in the property, such as age, location, and physical characteristics. Adjustments are necessary even in comparing vacant land, such as hookups for utilities, soil composition, and location. There should be similarities in the number of rooms, bathrooms, bedrooms, size of lot, building age, style, and condition.

3.  Reconcile all the comparable information and draw a conclusion of value.  The direct sales comparison approach is the most reliable gauge of the market and is most frequently used in appraising residential property, where the amenities are often difficult to measure. This approach is also a component for use in the other two methods of determining value. In the cost approach, market data are used to determine the depreciation figure, and in the income approach, market data are used to determine the market rent and capitalization rate. The direct sales comparison approach requires an active real estate market for the type of property being appraised.  

Return to types of appraisals

Cost Approach to Value:

The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for. The value of the improvements are then depreciated and this cost is then added onto the value of the underlying land component to establish and market value for the property.
 
Return to types of appraisals

 

Reconciliation:

Combining information from all approaches, the appraiser is then ready to stipulate an estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or ''bidding wars'' that may adjust the final price up or down. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money that the property is actually worth.

Return to types of appraisals

 

Drive-by Appraisal:

This form report is completed when the client does not require the in-depth information and detail of a full appraisal report and that a range of market value is acceptable.  This method of appraisal involves the appraiser conducting only an exterior inspection of the subject property and no interior inspection is conducted. Since the interior information on the property and its functional utility are assumed, only a range in value is provided. The Direct Sales Comparison Approach is used for this report.

Return to types of appraisals

 

Desktop Appraisal:

As the name implies, this is a market analysis completed at the appraisers desk and does not include a physical inspection of the subject property.  This report provides the basic information such as legal description, taxation data, type of dwelling and the Direct Sales Comparison Approach to value is used and, like a drive-by, only a value range is given.  It is then noted that this method of valuation is very limited in its findings.
 
Return to types of appraisals

 

Rental Estimates:

Research is conducted on the current market place to provide the client with a reasonable estimate of market rent for all types of residential properties.  For example:  Apartments, Townhouse, Homes, Basement suites, etc…

Return to types of appraisals