It has been a normal scene for prospective client and practitioners to ask an appraiser for the value of a certain property. Some people also thought that after site inspection, an appraiser can render a value opinion already. So, there is a need to answer questions on how an appraisal is done? And why it is important to follow the process?
Appraisal may seem as a simple and fast process. An appraiser shows up at a property for a short time with a camera and tape measure and that’s it. However, the property inspections are only a part of a big process. A typical appraisal report requires 12 to 13 combined hours by appraiser and staff to complete.
Ordering an Appraisal
The process usually begins when a client call or visit the appraiser to order an appraisal. In the telephone or in-person conversation, the appraiser will asks data of the property such as title, building plan, tax declaration, as well as preliminary information of the client, and agree on the scope of work and professional fee. The most important is scheduling of the site inspection.
Identifying the Property
In preparation for the site inspection, the appraiser will study the documents provided by the client focusing on the location, shape and size of the lot, design of the house and decide on what valuation approach that he will use. Additional research will be done in different government offices for the identification of the property.
The Site Visit
Then the appraiser conducts a careful physical inspection of the property and the neighborhood. Take photographs and verify area measurements. Don’t worry about the kids, toys or household disorder. The appraiser is looking at the structure, condition and features of your home.
The appraiser will also roam the neighborhood to observe, estimate the distance between known landmarks in the area. Also, to look for any factors and characteristics that may affect the value of the property, and searching for comparable properties or “comps”. In the language of appraisal, ‘comps’ are sales and listings available in the market.
Pulling It All Together
Next, the appraiser performs in depth analysis of all of the available data. Returning to office is crucial part of the appraisal process. The appraiser will gather all the information about the properties and the financial aspects. Make phone calls to agents, government offices and other parties involved in the transactions to confirm observations or to gather more information. Examine the title and tax declaration for any encumbrance, annotation and non-compliance with the law. Often, property information from several sources is in conflict and it is the appraiser’s task to determine the true state of affairs by means of research, experience and good judgment.
Guided by the principles of appraisal, he will analyze the neighborhood, market, zoning, the predominant use of the area and determine the highest and best use of the property, as vacant and as improved.
In using market data approach, the appraiser will select at least three comps, but generally four or five are necessary to support the basis for the final appraised value. The appraiser makes adjustments to reflect differences in comp properties. Upgrades like painting, chandelier, air conditioners, recent redecorating, or home improvements may add value to a property.
There are other approaches or methods in valuing properties. Every approach is made to substantiate the appraiser’s opinion of market value.
Finalization of a Report
The last part is the preparation and printing of a detailed report, outlining the value of the property appraised and the approaches to value with several addenda including copies of title and neighborhood maps as well as photographs of the property.
The completed appraisal is packaged and transmitted to the client—the property owner, lawyer or company representative who ordered the appraisal.
Thus, appraisal is not a mere “opinion of value”, it follow process and guidelines set by authorities and international standards. Following thoughtful and thorough procedures will provide a complete and credible appraisal.