Single Family Home Residential Real Estate Appraisal Analysis

Ever wonder how appraisers get the reconciled opinion of the value of the appraisal they just completed on your home? This article will provide an idea to the layman on how this happens.

First we must identify the problem to be solved (type of value sought as market value, insurable value and more), with market value being the most common. We must also determine what we must do to solve the problem (scope of work). Once we do this, let’s proceed.

First, not all appraisers evaluate the same. This may be related to a few things, such as the appraiser’s knowledge, appraiser experience, appraiser who is not tech savvy, appraisers are unwilling to change, and other reasons. For these and other reasons, you will never get 5 appraisers to present the same opinion of value (appraisal). However, we should be in the “ballpark”. So here we go.

Subject data

Let’s start with the topic. That is the house that is being appraised. We visit the house, measure to obtain square meters and draw, take photos (front, back and street) at least. These days we are often asked to take interior photos as well. We visually inspect inside and out looking at maintenance, quality, room additions, upgrades, and many other factors. We look at the neighborhood in question and any positives and / or negatives such as power lines, train tracks, airplane flight paths, overall neighborhood appeal, and more. Note that when the term “inspect” is used, it refers to visualization, as appraisers are not inspectors, which is clearly stated in the appendix for most appraisers. It’s in mine.

Comparable approach to sales

After collecting all the information and data necessary for the topic. The appraiser focuses his attention on finding suitable comparables. Comparables are homes that have recently been sold within or near the subject’s subdivision, usually no more than 1 mile away. Comparables can also be listed, houses that are for sale on the market but have not yet been sold. These comparables or comps, as they are affectionately called, should be similar to the theme in terms of square footage, layout, and amenities. Any difference in any of these elements requires what we call adjustments to be made in the compositions. Adjustments can be based on quality or quantity (qualitative or quantitative), they can be a percentage or a dollar amount. The adjustments give the comparisons an adjusted selling price which is what we base the value opinion on. Some of us appraisers, not all, also employ the use of charts and graphs to support our adjustments.

Cost approach

The appraiser also has to consider the land value, depreciation, and cost of improvements, which is only accurate when we are evaluating new home construction.

Income approach

Income is only considered when the home being appraised is a rental property and provides income. In this approach, operating income and expenses, the multipliers of gross income, are calculated.

There is much more that goes along with and is considered in the last two approaches to value. However, we will continue with the primary value approach for residential homes, which is the comparable sales approach. Once the adjustments to the sales comparables have been made, we form a value opinion, review and submit our report in a form called URAR (Uniformed Residential Appraisal Report).

It is important as appraisers before submitting any report that we are in compliance with USPAP (Uniform Standard of Appraisal Practice). This is what we, as appraisers, have to consider in all of our reports and make sure that we adhere to standards in all approaches to a value opinion that we may use.

This article provides a brief consumer overview of how we, as appraisers, provide an opinion on the value of residential real estate. However, there is much more to analyzing the collected data and preparing an accurate and credible evaluation report.

Copyright 2010