How it Works

The Appraisal Report

An Appraisal Report is what property owners would be most familiar with. When completing this assignment type, the appraiser will come and perform an interior and exterior inspection of the subject property. The interior inspection consists of documenting the types of finishes in the house, example hardwood vs carport floors or laminate vs stone counter tops, additional features such as built-in in kitchen appliances, cathedral ceilings, or a gas fireplace, and then the overall condition of the house. Typically the property is measured during the exterior portion of the inspection, although second floors will sometimes need to be measured from the interior, photos of the exterior of the house are taken along with pictures of the lot, and exterior features such as a pool, patio, deck, extensive landscaping, etc., are documented along with the condition of everything.

After completing the inspection of the entire property, the appraiser will return to their office and write the appraisal report which consists of a detailed description of the property along with up to three approaches to value for the subject. The three approaches to value consists of an Cost Approach, an Sales Comparison Approach, and an Income Approach.

The Three Approaches to Value

The three approaches to value consists of an Cost Approach, an Sales Comparison Approach, and an Income Approach.

Cost

The Cost Approach consists of a calculating the cost new of the property, at the effective date of the appraisal, and then applying all types of depreciation, accrued depreciation, present at that time to come to a current value of the subject.

Sales Comparison

The Sales Comparison Approach consists of finding, at a minimum, three of the most similar sales in the vicinity of the subject that have sold as recently as possible and then making any necessary adjustment to the sales for things like differences in the size of the lot or house, condition of the property, and quality of the finishes used inside the house. This will produce a range of possible value for the subject with the comparable sale requiring the fewest adjustments being the best indicator of value.

Income

The Income Approach can take the Gross Income of the subject, but more commonly, the Net Operating Income (NOI) produced by the property and then applying a local market based multiplier, for the Gross Income, or Capitalization Rate, for the NOI, to produce a current market value of the subject.