Holmes Real Estate Appraisal Co.
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Holmes Real Estate Appraisal Co. Appraisal Process
After the appraiser and client have agreed upon the performance of an appraisal, as depicted within an Engagement Letter, a professional real estate appraisal involves researching, inspecting, documenting, and analyzing a property to develop an independent, market-supported opinion of value. The appraisal process generally consists of three major sections: data gathering and property description, valuation analyses and reconciliation, and supporting documentation included in the addenda.
1. Data Gathering and Property Descriptions
The appraisal process begins with defining the assignment, identifying the property, and gathering the information necessary to understand its physical characteristics, legal status, market influences, and potential uses. This research establishes the foundation for the valuation analysis.
Assignment Identification and Requirements
Identifies the client, intended users, intended use, purpose of the appraisal, property interest being valued, type and definition of value, and any additional assignment conditions or instructions. It also establishes the effective date of valuation, report date, and applicable assumptions and limiting conditions.
Property Identification and Ownership
Establishes the property's identity through its address, legal description, parcel numbers, ownership information, and relevant property records.
Market Area and Neighborhood Analysis
Examines the broader market and immediate neighborhood, including economic conditions, surrounding land uses, development patterns, accessibility, market trends, and other factors that may influence the property's value.
Land and Site Description
Analyzes the property's physical characteristics, including acreage, boundaries, topography, access, utilities, drainage, soil characteristics, and other relevant site features.
Improvements and Property Features
Documents the buildings and other improvements, including their construction, size, design, condition, functionality, and utility. Furniture, fixtures, and equipment (FF&E) are also considered when relevant to the assignment.
Property History, Financial and Legal Information
Reviews available ownership, sales, transfer, rental, and occupancy history, along with relevant tax records, leases, income and expense information, zoning regulations, and covenants, conditions, and restrictions (CC&Rs).
Highest and Best Use Analysis
Evaluates the property's legally permissible, physically possible, financially feasible, and maximally productive use, both as though vacant and as improved when applicable. This analysis helps establish the property's most appropriate use and provides a foundation for the valuation process.
Scope of Work, Assumptions and Market Exposure
Explains the research, inspection, data collection, and analysis performed, along with any extraordinary assumptions or hypothetical conditions. It also addresses exposure time and marketing time, which estimate how long the property would typically be available in the market before a sale at market value and how long it may take to sell following the effective date of the appraisal.
The information gathered and analyzed in this section establishes the factual and market foundation for the valuation approaches developed in the next section.
2. Valuation Analyses, Reconciliation and Final Opinion of Value
This section examines the property's value through applicable valuation methods. The appraiser analyzes relevant market evidence, develops value indications, and reconciles the results into a final opinion of value.
Land Valuation Analysis
Estimates the value of the land as if vacant and available for its highest and best use. This analysis commonly relies on comparable land sales and considers location, size, zoning, access, utilities, topography, and other relevant characteristics.
Cost Approach Analysis
Estimates value by considering the cost to acquire the land and construct improvements of comparable utility, less applicable depreciation from physical deterioration, functional obsolescence, and external influences.
Sales Comparison Approach
Estimates value by comparing the subject property with similar properties that have recently sold or are currently competing in the market. Differences between the properties are analyzed and adjusted to develop an indication of value for the subject.
Income Approach
Estimates value based on the property's ability to generate income. The analysis considers market rents, occupancy, vacancy, operating expenses, net operating income, and appropriate capitalization or discount rates.
Reconciliation and Final Opinion of Value
Evaluates the relative reliability and applicability of the valuation indications developed in the appraisal. The appraiser considers the quality of the supporting data, the strengths and limitations of each approach, and the characteristics of the property to arrive at a final opinion of value.
3. Addenda and Supporting Documentation
The addenda contain photographs, supporting documents, market data, and other reference materials used in the appraisal. These exhibits provide additional detail and documentation supporting the appraiser's research, valuation analyses, and final opinion of value.
Depending on the property and assignment, the addenda may include:
Property Photographs
Photographs documenting the subject property, buildings, site characteristics, and surrounding area.
Comparable Sales and Market Data
Supporting information and data sheets for comparable land sales, improved property sales, and rental properties analyzed in the appraisal.
Property and Regulatory Information
Relevant zoning information, maps, recorded covenants, conditions and restrictions, and other property-specific documentation.
Transaction and Lease Documents
Buy-sell agreements, leases, rental information, and other transaction-related documents when applicable to the assignment.
Additional Supporting Information
Other relevant market research, public records, calculations, correspondence, and reference materials used in developing the appraisal.
Letter of Engagement and Privacy Notice
Documents outlining the appraisal assignment agreement, scope of work, engagement terms, and applicable privacy practices.
Qualifications of the Appraiser
Provides the appraiser's professional background, education, licenses, designations, and experience.
Note:
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The descriptions are intentionally general. Not every appraisal contains every item listed; the report's contents depend on the property, intended use, and scope of work.
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The Market Value of the Going Concern discussion will appear only when applicable to the assignment.
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The addenda exhibits support the analysis; they are not necessarily included in every appraisal report.
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The actual appraisal reports may use slightly different section names or ordering.
Frequently Asked Questions
What Are the Main Steps in a Real Estate Appraisal?
A professional real estate appraisal generally involves three main stages: gathering and analyzing property and market information, developing and reconciling applicable valuation approaches, and preparing a written appraisal report with supporting documentation. The process provides an independent, market-supported opinion of the property's value as of a specific effective date.
What Approaches Are Used to Determine Real Estate Value?
The three traditional approaches to value are the Sales Comparison Approach, Cost Approach, and Income Approach. Depending on the property type, assignment requirements, and available market data, an appraiser may use one or more of these approaches. Land valuation is also analyzed when applicable.
Are Real Estate Appraisals Based on Market-Derived Evidence?
Yes. A credible real estate appraisal is based on relevant, verifiable market evidence. The appraiser researches and analyzes comparable sales, listings, rental information, operating data, construction costs, and other market information, as applicable to the property. The final opinion of value reflects the appraiser's analysis of the market evidence as of the appraisal's effective date—not simply an owner's expectations or an unsupported estimate.
Why Can't an Appraisal Simply Be Based on the Buy-Sell Agreement Price?
A buy-sell agreement establishes the price a particular buyer and seller have agreed upon, but that price does not automatically establish market value. Market value requires an analysis of the conditions surrounding the transaction, including whether both parties were typically motivated, adequately informed, acting in their own interests, and under no undue pressure. The agreed price is important market information that the appraiser considers, but it must be evaluated along with other relevant market evidence to determine whether it is consistent with market value.
How Long Does It Take to Perform a Real Estate Appraisal?
The time required to perform an appraisal depends on the complexity of the property, the nature of the assignment, and the scope of work necessary to complete the valuation. A relatively straightforward property may require less research and analysis, while more complex properties may require additional investigation, market research, and valuation analysis.
How Long Will It Take to Receive My Completed Appraisal Report?
The turnaround time for receiving a completed appraisal report depends on several factors, including the complexity of the property, the scope of the assignment, the appraiser's current workload and scheduling, economic conditions such as interest rate activity, and the time of year. Some assignments may be completed within a couple of weeks, while during busier periods or when assignments are more complex, scheduling may extend to eight weeks or longer. An anticipated completion date will be discussed when the assignment is accepted.