6 Steps of the Appraisal Process

June 20, 2017 | Iulia Zecheru

An appraisal is an estimate or opinion of the property’s value. A distinction needs to be made between value and price. Price is the amount that someone paid for a property in a transaction. Market value is the price that a property should bring in a competitive and open market. To establish the value of a property an appraiser uses some principles, such as anticipation, conformity, substitution, progression, and contribution.

6 Steps of the appraisal process:

1. Identify the subject property
2. Collect data
– Neighborhood analysis – a property’s value is directly influenced by its surroundings (physical, social, economic characteristics and governmental influences). when collecting data, the appraisers analyze the percentage of home ownership, vacant homes and lots, conformity, changing land use, the contour of the land, streets, utilities, nuisances, proximity to traffic arterials, shopping centers or train stations, schools, public services and governmental influences;
– Site analysis (to determine the property’s highest and best use) – data regarding the property’s physical characteristics (width, frontage, area, depth, shape, topography, utilities, and site in relation to the area);
– Building analysis – the appraiser will consider the improvements and the special amenities (construction quality, age of the home, square footage, orientation, basement, interior layout, rooms, bedrooms, bathrooms, AC, energy efficiency or presence/lack of a garage);
3. Analyze data – the appraiser will consider every factor and weight its importance in the rapport;
4. Determine the value of land – appraising the vacant land without the improvements;
5. Apply appraisal methods:
– Sales Comparison Approach (comparing the subject property to similar properties that have recently sold in the area)
– Cost approach (used for newly constructed buildings, will estimate how much it would cost to build a replacement of the property)
– Income approach (determines the present value of the property’s future income)
6. Reconciliation – weighs different value indicators to arrive at the final estimate of the value of the property.

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