What is the appraisal process?
The appraiser uses a well defined series of steps to reach the final estimate of value for your property.
The process begins with the Inspection. The appraiser goes out to the property to do a physical inspection of the site, gathering measurements, taking photographs, making a sketch, assessing any amenities, special features, and condition of the property.
The next, and most time consuming step is the application of the three approaches to value. These are the Cost Approach, Sales Approach, and Income Approach. The appraiser will use one or all of these approaches to value, depending on the type of property and assignment.
The Cost Approach to value assumes that no one would pay more for a property than it would cost to buy the land and construct the building. The appraiser uses local building costs, labor rates and other factors to determine how much it would cost to build a property like the one being appraised. The appraiser then estimates depreciation to reconcile the approach to a final value.
The Sales Comparison Approach to value is most often used in residential appraisals, and uses market data to determine the estimate of value. It compares prices paid for similar properties in residential areas similar to the subject property. A comparison grid is used to show the differences between the subject and each comparable sale property. Adjustments are made to reflect such items as gross living area, location, condition, lot size, and other amenities or upgrades.
The Income Approach to value is used for income producing properties. It bases the estimate of value on the expectation of benefits to be derived from ownership, operation and/or capital gain at resale of the property. The income approach includes the gross potential income generated by leases, less expenses, to arrive at a final value after utilization of a capitalization rate.
The final step to the appraisal process is the Reconciliation. The appraiser examines all applicable approaches to value and determines the final estimate of value, based on the most applicable approach.
