CENTURY 21: The Gold Standard

The Appraisal Process

Anthony Matsell

Member (IFA)


Must join the Association as a Candidate, pass a written examination and submit a narrative appraisal report meeting the Association's requirements. The report must be approved by the National Education Committee and the Candidate must also meet the educational and appraisal experience requirements outlined by the Association.

 

The Appraisal Process

Today is the age of specialization and the real estate profession is no exception to the rule. Real estate appraising is a complex field. The sale of your home, business or any "real property" may be the largest transaction of your lifetime. Appraisers opinions can play an important part in almost any real estate transaction. For this reason an Independent Appraiser should be consulted.

 

What is an Appraisal?

An appraisal is an opinion of value or the act or process of estimating value. This opinion or estimate is derived by using the three common approaches, all derived from the market. They are:

 

  1. Cost Approach to value is what it would cost to replace or reproduce the improvements as of the date of the appraisal, less the Physical Deterioration, the Functional Obsolescence and the Economic Obsolescence. To remainder is added the Land Value.
  2. Comparison Approach to value makes use of other "bench mark" properties of similar size, quality and location that have recently sold. A comparison is made to the subject property.
  3. Income Approach to value is of primary importance in ascertaining the value of income producing properties, has little weight in residential type properties. This approach provides an objective estimate of what a prudent investor would pay based upon the net income the property produces.

Then, after thorough analysis of all general and specific data gathered from the market, a final estimate or opinion of value is correlated.

 

Why Should You Have An Appraisal?

An appraisal of real estate is the valuation of the rights of ownership, the appraiser must define the rights he intends to appraise.

The appraiser does not create value, the appraiser interprets the market to arrive at a value estimate. As the appraiser compiles data pertinent to a report, consideration must be given to the site and amenities as well as the physical condition of the property. An appraiser may spend only a short time inspecting the property, however, this is only the beginning.

Considerable research for collecting general and specific data must be accomplished before the appraiser can arrive at a final opinion of value.

Due to the many types of value, such as Fair Market Value, Insurance Value, Tax Value and Value in Use, the need to precisely define the purpose of the appraisal is readily indicated.

 

How Do You Choose an Appraiser?

Before engaging the services of an appraiser, it is advisable to thoroughly check the qualifications of the appraiser. The National Association of Independent Fee Appraisers conducts a professionally recognized testing and certifying program.

Professional Designations

The National Association of Independent Fee Appraisers was founded in 1961 as a non profit professional association of real estate appraisers. Today, the Association has chapters through-out the United States, and continues to grow both in number and in stature.

The Association's objective is to raise the standards of the appraisal profession, gain recognition for its' members as qualified professional and to promote fellowships among appraisers.

This objective and professionally recognized testing and certifying program above said affords reasonable assurance to the general public of the professional expertise, integrity and responsibility of the members of the National Association of Independent Fee Appraisers.

The four [4] member categories with professional designations are:

Member:
Mem./Arg
Senior Member
Appr/Couns		 with IFA Designation
with IFAA Designation
with IFAS Designation
with IFAC Designation

8.1 Professional Conduct. A member shall conduct himself/herself at all times in a manner beneficial to the Association and to the community.

8.2 Fees. No fee may be contingent upon the valuation of an appraisal. All fees for trial testimony must be determined prior to the trial. No fees may be split without the consent of all interested parties.

8.3 Appraisal Reports. Each appraisal must contain the following items in addition to all pertinent information known to the appraiser at the time of the appraisal:

 

  1. A statement as to purpose and/or objective of the appraisal, with value defined.
  2. A legal description and/or adequate identification of the property appraised.
  3. The date of the value estimate, the date at which the value estimate applies.
  4. An adequate description of the physical characteristics of the property appraised.
  5. A statement as to the known and/or observed encumbrances, if applicable.
  6. A statement and analysis of the highest and best use of the property appraised, if appropriate.
  7. A statement as to the property rights appraised.
  8. A direct sales comparison approach and analysis, if applicable.
  9. A cost approach and analysis, if applicable.
  10. An income approach and analysis, if applicable.
  11. A statement as to the conclusions reached in the appraisal report.
  12. Documentation requirements [the appraiser must have the minimum data requirements in his/her file to properly support the final estimate of value].
  13. A statement as to the assumption and limiting conditions affecting the appraisal.
  14. The signature of the responsible appraiser together with his/her particular designation [IFA, IFAA, IFAS, IFAC].
  15. The maintenance of confidentiality regarding the appraisal assignment and results thereof.
  16. Designated members [IFA, IFAA, IFAS, IFAC] must disclose their continuing education status clearly in every appraisal report.

8.4 Value Reports. No value conclusion may be formulated upon:

 

  1. Improbable and unsupportable premises.
  2. Vague assumptions unsupported by fact.
  3. Improbable highest and best use.

8.5 Certification Statement. The certification of each appraisal must contain the statement: "This appraisal has been prepared in conformity with the Code of Ethics of the National Association of Independent Fee Appraisers and the Uniform standards of Professional Appraisal Practice [USPAP] as promulgated by the Appraisal Foundation." On printed forms supplied or required by client, the appraiser is bound by the above code and certification even though the statement is not contained therein.

8.6 Professional Practice. It is unethical for an appraiser to:

 

  1. Conduct himself/herself in any manner which will prejudice his/her professional status or the reputation of any appraisal organization with which he/she is connected.
  2. Compete unfairly with other appraisers.
  3. Injure by falsification or by malice, directly or indirectly, the professional reputation, prospects or business of any other appraiser.
  4. Fail to report to the Association, the actions of any member who, in the opinion of the reporting member, has violated this code of ethics.
  5. Advertise or solicit appraisal business in any manner not consonant with accepted professional practice.
  6. Reveal in any way the substance of any appraisal without permission of the client or due process of law.
  7. Issue a separate appraisal report when another appraiser assigned to appraise the property has had a part in the formation of the opinion of value.
  8. Issue an appraisal report on only a part of a whole property without stating that it is a fractional appraisal; and, as such, subject to use in a manner consistent with such limitations.
  9. Accept an assignment to appraise a property of a type with which he/she has had no previous experience unless in making the appraisal, he/she associates himself/herself with an appraiser who has had experience with the type of property being appraised; or, makes full disclosure of the degree of his/her experience, background and training to his/her client.
  10. Appraise knowingly, a property which is subject to existing leases, encumbrances or other specific factors without disclosing the effects thereof upon the value of the property.
  11. Appraise property in which the appraiser has an interest without that interest being fully disclosed.
  12. Contract for or accept compensation for appraisal or analysis services in the form of a commission, rebate, division of brokerage commissions, or any similar form.
  13. Receive or pay any finders or referral fees.

How You May Help

Once you have selected an appraiser, be prepared to answer the following questions or have as much information as possible.

 

  1. Purpose of the appraisal.
  2. The required completion date of the appraisal.
  3. Provide a copy of deed, survey, purchase agreement or other pertinent papers pertaining to the property.
  4. Is there a mortgage? If so, with whom, when placed, for how much, type of mortgage [FHA, VA, etc.], interest rate, and any other types of financing.
  5. Copy of current real estate tax bill, statement of special assessments, balance owing and on what [sewer, water, etc.].
  6. Is property listed for sale and if so, for how much and with whom.
  7. What personal property is included.
  8. If this is an income-producing property, you must have a breakdown of income and expenses for the last year or tow and a copy of leases.


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