Appraisal is market analysis

stock-photo-market-analysis-157130024There are bricks-and-mortar appraisers which worship cost method as the most powerful in appraisal.  But, the appraisers of today know that the materials of valuation flow from the real estate market.

In every assignment, appraisers perform a remarkable market analysis prior to the selection of comparables and determining the market area. The appraiser analysis the economy, political, regional situation, real estate developments, and its impact to the present and future land value. The purpose is simple, to know the present and predict the selling price of the subject property, if exposed in the market for a reasonable time.

In a typical assignment, the appraiser is customarily called in by a client not literally to know the “worth” of the property but to asked his judgment as to what the property would bring in a given real estate market. The market value of the property in a given market.

Other methods in appraisal like cost approach is important but it should be anchored in the market analysis. In essence, cost approach is based in the market. The cost of materials which is used in the cost approach method is derived in the construction supplies market. The cost of gravel and sand is high in Cebu but not in Leyte. The labor cost in the provinces is different from that in urban area.

What comprise the market?

Appraisal is market analysis- but what is market?  As we all know, market is a place where buyers and seller meet. It is compose of micro market and macro-externalities. The micro market is where the action is- the seller meets the buyer, in a direct and competitive interaction that eventually results to a price determination. The macro externalities are the influencing factors like the economy, business condition, flow of money, inflation and others.

We already experienced the impact of economic crisis in the real estate. However, in time of surging business and economic development, the real estate market also grow.

Appraisers should know how to identify the appreciating market.  Like the outbalance of supply and demand, presence of buyer and seller’s market, reduced marketing time for active and closed sales, increase in sales prices and existence or absence of seller concessions and whether property condition impacts marketability.

The presence of several factors would be a strong indication that the market is appreciating and appropriate analysis and adjustments for date of sale, time to comparable sales becomes necessary to produce credible assignment results.

Thus, the true nature of appraisal is real estate market analysis.