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3 Things to Consider in an Appraisal

Having completed hundreds of appraisals we never really give much thought about what the homeowner must be thinking.  Recently had a home appraised and was strange being on the other end of this process.  Having a stranger come through my home taking photos and not conversing much was a little strange.  Not an everyday occurrence for sure.  Below are a few things to consider as to what the appraiser may be thinking about.

What is the condition of the home?

If your home is older is there much in the way of differed maintenance.  I mean are there those “honey do” jobs that never got the attention they needed.  Peeling paint, exposed exterior wood surfaces, soiled carpeting, damaged doors or walls.  While many items may seem to be cosmetic the appraiser is observing the home for its overall condition and has to rate it.  In the case of government loans, the appraiser has to test and observe additional items for compliance.  It is a good idea to get these items taken care of prior to listing your home for sale or having the appraiser stop by.

Any recent sales and/or homes for sale in the neighborhood?

If you have a friend or relative in the real estate business they can help you with this.  You may also check online sources to see some transactions occurring around you.  Are there any “open houses” you can check out?  When the appraiser is working on providing an opinion of value the best indicator is what other Buyers are paying for similar homes.  This approach is called the Sales Comparison Approach and in most cases is going to be the most relied upon and utilized approach.  But all in all if you know of several sales in your area you can get a rough idea.

How does my home compare?

Ultimately the appraiser is going to try and determine how does your home compare in size, features, and/or condition to home sales around you?  This will more or less be how the appraisal is developed.  While all homes are not exactly alike having different finishes, sizes, floorplans, and features, differing lots (situated on busy road or sites with a view) all these factors are taken into account.  The appraiser will determine what these differences bring in terms of value based on other sales, conversations with local agents, and sometimes depreciated costs. 

The whole process is not rocket science by any means but much more than taking a bunch of sales and dividing by square footage to derive a dollar per square foot.  The more complex the assignment the more investigating and data collection is required.  With real estate being one of the largest investments in your portfolio it pays to hire a professional appraiser. 

www.SunPointAppraisals.com

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Review of an appraisal is the most important aspect of a firms production.  Appraisals with misleading and confusing analysis make a report less reliable and does not serve the public well.  Lets face it we all get busy and if working from home, as many appraisers do, there can be many distractions.  While the majority of reports we review only require an occasional suggested to expand explanation and commentary some may have major flaws.  Outside of the occasional human flaw there is instances when reports are not saved properly within the appraisal software and uncheck the report gets delivered.  Whatever the case may be the review of a report prior to delivery to the end user is the essential buffer zone to get all things in order.

Characteristics of a Quality Appraisal Report

Whether its a FNMA form or a narrative they all get a review here at Sun Point.  The characteristics we look for are:

• CURRENT  A report written in real time must utilize current data and methodolgy.  Analyze current market conditions, capitalization and discount rates.
• COMPLETENESS The report must contain all the relevant information to sufficiently describe the subject property to the Reader/User of the report.  The report should state if the improvements are subject to leases, easements, seperate agreements, special finacing, what the condition of the property (does it need repair?) and if the management of a property is having difficulties in terms of lawsuits or building tenants.
• CORRECTNESS  There must be an accurate explaination of facts.  Address an issues relevant to the assignment.  There is no excuse for serious errors in property descriptions, tax information, tenant records, sales and leases, and other data which may impact value.
• COGENT  The final report will logically, clearly, and convincingly lead the Reader through the steps of the appraisal arguement.  Reader/Users need to be able to follow the data, reasoning, and reconcilation used to arrive at the final estimation of value.
• CONSISTENT  A somewhat more common error we find is inconsitencies.  What is initial descibed as the subject improvements needs to be consistent throughout.  There should be no surprises.  Adjustments made should be consistent from one property to the next and if not a explanation is provided that is easy to follow.
• CONVENIENT  The User needs to be able to locate the pertinent details they are looking for easily and quickly.  Information that is not organized or placed in odd places in a report cause confusion and valuable time on the clients end.
• CONCISE  A good report need to be factual and to the point.  No need to comment on items that do not impact value or marketability.  The number of cars which pass by the home on the average day or how long it may take to complete manicuring of the landscape may be overkill and needless information.

A good report should discuss market conditions on a Micro and Macro level.  An appraiser is responsible for a report for a minimum of 5 years.  Many things may and most likely will change in that time.  Having some level of detail regarding the market at the time of the effective date of the report is needed. 

The report must comply with USPAP and the appropriate regulatory requirements.  Several of our clients/investors have specific items they have requested in the scope of the assignment which will need to be addressed as well.

All in all the key to a good report is it is well written, clear, concise, readable, has good logical flow, no unneeded useless information, its factual, organized, well written comments, competent and most importantly reliable.