Appraisal Process & Scope of the work to be performed ……

THE TRANSACTION

First the appraiser must consider the subject property transaction if it is under contract for sale or purchase, is rented or leased, or otherwise encumbered. This is required by the Uniform Standards of Professional Appraisal Practice to determine if the transaction being considered is consistent with the market by which it is being measured. If the property is leased there is the potential for a lease fee value that would be different from the fee simple value, and there may also be a leasehold value attributed to the tenant. The property may also be encumbered and not available to be included as a market participant at the time of appraisal. All of these transaction considerations must be identified and reconciled in order for the subject property to similarly compare (apples with apples) with current market influences.

PERSONAL INSPECTION OF THE SUBJECT PROPERTY

The appraiser will make a personal inspection of the subject property (s), reviewing the land, the topography, the soil types, the types of vegetation on the site, the man made improvements to the site, and will measure and quantify the size, shape, age, and overall condition of the site improvements. The appraiser will also inspect, discover, consider and evaluate the size, age, quality of materials, quality of craftsmanship, condition, overall adequacy of the improvements for the intended use, functional utility of the improvements, flow through the building (s), type and functional utility of the mechanical systems, and placement of the building (s) on the site.

OTHER INSPECTION OF THE PROPERTY

The appraiser will also consider the current zoning and land use classification of the property, and verify that the existing structures on site provide for a legal conforming use, legal non-conforming use, or illegal use of the property. If the properties zoning/land use classification appears to be contrary to the predominant land use in the area, the appraiser will contact and discuss with the planning department or the municipality the likelihood, cost and time associated with a change in the classification. Access to the property will be reviewed to determine if there is legal access to the property. Plans and specifications for development may also be reviewed for proposed construction, condemnation, and other hypothetic valuation assignments. The soil type will be considered for its load bearing capabilities and drainage characteristics. Plats and maps of the site will be reviewed to reflect any easements or encroachments that may be evident. Property appraisers records will be reviewed to determine the assessed value of the property, taxes, and consideration as to similarities between the Property Appraisers information as compared with personal inspection of the property. We will also consider the possible value factors that may be affected by the tax liability, specifically the similarity with comparable properties, or if a variance measurably affects the value of the subject. Both the property appraisers records and records from the clerk of the court may be reviewed for determining the properties sale and transaction history.

INSPECTION OF THE REGION AND NEIGHBORHOOD

The appraiser will consider the region and larger areas surrounding the property and the subject neighborhood, with consideration as to the overall health of the economy, the availability of funds for lending purposes, lending rates, the job market for employment possibilities and stability, the proximity to larger metropolitan areas, and the availability of goods and services within reasonable travel distance. Also considered are travel routes, roadway adequacy, and climate conditions. Properties near and adjacent to the subject are reviewed and considered in order to measure the size, shape, age, and stability of the neighborhood. Particular consideration is given to how the subject property compares to other properties in the neighborhood, especially with respect to physical or economic characteristics. There are many neighborhood issues to consider including but not limited to accessibility, road condition, stability, economic influences, crime rate, common use facilities, availability of public utilities, homeowner association dues, etc….  Consideration of the subject property with respect to the neighborhood influences provides the basis for a broad range of analyses, including potential super adequacies, misplaced or inappropriate improvements, inequitable economic influences, etc…

TYPE OF APPRAISAL REQUIRED

The methodology of the valuation process is contingent upon the property type, the neighborhood, the availability of data, and the market influences. For some appraisals, the cost approach may be the only approach, in other appraisals only the income approach is applicable, or maybe the direct sales comparison is the only approach. In other appraisals all or any combination of the approaches may be use, or alternative approaches such as discounted cash flow analysis or linear regression analysis may be appropriate. The appraisal process takes into account the type of appraisal methodology most appraisers would consider appropriate based on the property type and the market influences. For the complete appraisal all appropriate approaches to value are considered.

ESTIMATION OF THE PROPERTIES HIGHEST AND BEST USE

After the property is identified and some preliminary opinion of Highest and Best Use is determined, sales of nearby properties and file data are compared with the subject site. The analysis of the land values and characteristics provides for an opinion as to the highest and best use of the land as if vacant. Then the contributing value of the improvements is estimated to determine if the improvements do contribute to the value of the property overall. If this analysis determines that the value of the land as if vacant is greater than the value of the property as improved then the land is valued without the improvements plus possibly an adjustment for the cost of removing the improvements. If the improvements are found to contribute to the value of the whole, then property is valued based on the current use or as improved.

SALES DATA IS LOCATED, VERIFIED, AND REVIEWED

Sales of properties based on the estimate of highest and best use are then located in reasonably similar neighborhoods or in close proximity to the subject. The sales are located using several subscription databases, the property records, multiple listing service, file data from previously appraisal assignments, and our own in house data base. The sales are then researched to discover all of the types of data indicated above under “OTHER INSPECTION OF THE PROPERTY” including a personal inspection of the exterior of the property, neighborhood influences affecting the sale and comparison with the subject, and verification (when available) with a party to the sale transaction. This generally gives us the transaction data needed to determine if the property is a market sale, or if adjustment is needed for transfer or retention of certain property rights, special conditions of the sale, or possible finance concessions. Other factors considered are the historic sale prices of other properties near the subject, and the continuity of use in the sales neighborhood. We also analyze data to abstract adjustments for time, location, size, accessibility, economic life expectancy, depreciation, functional utility, improvement similarity, site similarity, and a broad range of other issues that may be specific to the sale for comparison purposes. The sales search, verification process, and discovery of the sale generally requires more time and effort than the inspection of the subject property, and often after the time is spent the data is found to be unreliable or unusable as it relates to the subject. As such, the process often includes much data that is necessary to adequate completion of the appraisal process, but that is not included in the final report. Considerable time is generally expended in this portion of the appraisal process, because we will review a broad range of data to support the reasonability of the highest and best use analysis and for the best data available for use in the direct sales comparison approach.

THE COST APPROACH

The cost approach is based on the principle of substitution and will include a sales search for land near the subject that will be used to estimate the value of the subject site as if vacant. The improvements to the building and the site will be estimated based on a subscription service to the Marshall Valuation Service Manual, which is updated monthly. The data contained in this manual is supported as reasonable based on actual building cost data obtained by this office from contractors, which required appraisal services for new developments in the area. Additionally research may require confirmation and verification of the availability of entrepreneurial profit by the market, possibly lump sum adjustments for impact fees and other items, and a lease up analysis and adjustment may be applicable for income properties. The market research indicated by the sales comparison and income approaches generally reflect the measurement for depreciation and obsolescence.

THE INCOME APPROACH

When available the income for the property will be compared with similar properties being rented in the open market. If the rents appear similar to the subject rents, the rental income for the property s assumed to be at market rates. If the rents are lower or higher than the market then additional analysis may be required to determine the need for secondary capitalization of excess rent, or there may be additional analysis needed for determining the difference in the lease fee value or possibly a leasehold value. The typical vacancy for the neighborhood must then be discovered and compared with the subject to determine if the subject is at stabilized occupancy or if additional analysis will be required to adjust for a difference or lease up adjustment to the income approach. The operating costs for the facility must then be compared with similar properties to reflect inconsistencies in the operating cost structure and additional analysis may be required to adjust for these differences. Capitalization rates must be extracted from available data to provide for a reasonable capitalization rate. This generally results from consideration of sales data used in the direct sales comparison approach, conversation with local lenders, reference to subscription services, and other noted sources of investment activities.

FINAL RECONCILIATION

After all the data is collected, verified, compared, broken down into a variety of rates and ratios and analyzed for its component parts, reconstructed, and applied to the subject property, a final opinion of value is provided. This process generally considers the individual value indications provided by the cost, income, and direct sales comparison approaches and considers the merits of each as compared to the reactions and implications identified by marketplace in general.

THE REPORT PROCESS

According to the type of report required, this complete appraisal could be reported in a brief or restricted format, a summary format, or a self-contained format. The report must not be misleading, and the appraiser (not the client) must determine the best method to meet the requirements of the client, by giving an adequate report that will provide for the intended use. In a self-contained appraisal format the process is simple, since the appraiser provides a lengthy report identifying the entire thought processes including data that was used in providing the opinion of value. The summary appraisal is often referred to as the table appraisal, and is generally a report filled with forms, and summaries of the data discovered and reviewed. The restricted appraisal report can only have the client as the intended user of the report, and may included nothing more than a value and some qualifying data as to the nature of the report. The appraiser must determine the minimum accepable requirement for the reporting process.