Residential Real Estate Appraisal Analysis of Single Family Homes

Ever wonder how appraisers arrive at a reconciled opinion of the value of the appraisal they just completed on your home? This article will give the layperson an idea of ​​how this occurs.

First we must identify the problem to solve (type of value sought as market value, insurable value and more), with market value being the most common. We must also determine what we must do to resolve the problem (scope of work). Once we do this, then we proceed.

First of all, not all appraisers value the same. This can be related to a few things, such as the appraiser’s knowledge, the appraiser’s experience, the appraiser not being technologically savvy, appraisers not willing to change, and other reasons. For these and other reasons, you will never get 5 appraisers to come up with the same opinion of value (appraisal). However, we should be in the “ballpark”. So here we go.

Subject data

Let’s start with the topic. That is the house that is being appraised. We visit the house, measure for square meters and sketch, take photos (front, back and street) at a minimum. These days we are often asked to take photos of interiors as well. We visually inspect inside and out for maintenance, quality, room additions, upgrades, and many other factors. We look at the neighborhood in question and any positive and/or negative aspects such as power lines, train tracks, airplane flight paths, overall neighborhood appeal, and more. Note that when the term “inspect” is used, it refers to viewing, as appraisers are not inspectors, which is clearly stated in most appraisers’ addenda. it’s in mine

Comparable Sales Approach

After collecting all the necessary information and data for the topic. The appraiser focuses his attention on finding suitable comparables. Comparables are homes that have recently sold within the subject subdivision or near the subject, usually no more than 1 mile away. Comparables can also be listings, homes that are on the market for sale but have not sold yet. These comparables or comps, as they are affectionately called, must be similar to the subject in terms of square footage, layout, and amenities. Any difference in any of these elements requires what we call composition adjustments to be made. Adjustments can be based on quality or quantity (qualitative or quantitative), they can be a percentage or a dollar amount. The adjustments give the comps an adjusted selling price which is what we base our opinion of value on. Some of us appraisers, but not all, also employ the use of tables and graphs to support our adjustments.

cost approach

The appraiser also has to consider the value of the land, depreciation, and the cost of improvements, which is only accurate when we are appraising new home construction.

income focus

Income is only considered when the home being appraised is a rental property and provides income. In this approach, operating income and expenses, the gross income multipliers, are calculated.

There is much more that goes with and is considered in the last two approaches to value. However, we will continue with the primary approach to residential home value, which is the comparable sales approach. After making adjustments to comparable sales, we form an opinion of value, review, and file our report in a form called a URAR (Uniform Residential Appraisal Report).

It is important as appraisers before submitting any report, that we comply with USPAP (Uniform Standard of Appraisal Practice). This is what we as appraisers must consider in all of our reports and ensure that we meet the standards in all approaches to an opinion of value that we may use.

This article provides a brief consumer overview of how we, as appraisers, provide an opinion on the value of residential real estate. However, there is much more to analyzing the data collected and preparing an accurate and credible assessment report.

Copyright 2010