For many years, the appraisal process has been seen by many as mysterious. Valuation Management Group would like to take this opportunity to give an overview of the process of the appraisal.
When an appraiser “inspects” a home or property, the inspection is really the “tip of the iceberg” of the work to be done in completing an appraisal report. Before an appraiser ever views a property, they usually research public records information, obtain a plat map, check the zoning and flood zone data and conduct preliminary research based on what the property appears to be in public record data.
During an inspection, the appraiser will measure and draft a drawing of the home and location of other improvements. These improvements could be anything from a swimming pool to any other additions to a property. The appraisers then make notes on physical features and quality of materials. If the appraiser has been provided with architectural plans, they will usually verify a few measurements to assure the property was built according to specifications shown on the plans.
On the way to and returning from a property, the appraiser pays close attention to the surrounding neighborhood. The appraiser will note the overall characteristics and appeal of the location, general care and quality of properties in the area, etc.; which all speak to the degree of comparability of immediate market areas or neighborhoods. After the inspection and if the appraiser is certain they have full knowledge of the subject property relative to location, size, age, condition and quality, they begin the selection of comparable sales and listings and take photos of them.
Once the appraiser is back to their office, it is necessary to contact real estate agents for more information on the comparable sales that may not be in the MLS database. This could include: the terms of the sale, condition and interior finish quality of the home, etc. Then the appraiser will reconcile conflicting information from different data sources, perform an analysis of the value difference attributable to differing features between the sales and the subject property, and ultimately write up the report.
Appraisers working in rural areas, or areas with less data available, will take longer to complete an appraisal because the data services and public records are not fully automated or available on line at all. Commercial appraisals are much more time consuming than residential appraisals. More research and analysis is required for commercial appraisals in order to fully and properly develop two or three approaches to value and write a customized narrative report for each subject property.
Can the client suggest the scope of work or instructions for the appraiser to use in performing the appraisal? Yes, the client can suggest the desired scope of work or specific instructions to the appraiser. However, the appraiser operating under his or her professional obligation to comply with Uniform Standards of Professional Appraisal Practice (USPAP) determines an appropriate scope of work to produce credible assignment results. Therefore, the minimum requirements for the scope of work are determined by the appraiser. If there is not a sufficient amount of market data available, then certain approaches or methods cannot be used. There must be enough data to produce meaningful results. Requiring an appraiser to develop an approach to value, or use a specific appraisal method, because it is customarily provided in appraisals, may be forcing an appraiser to use data that is not really comparable or applicable to an actual subject property. This means the results of that approach will not be credible or reliable. This could potentially be judged and “misleading,” which would be a violation of USPAP.
Know that appraisers do quite a bit of work before they even arrive at a property to “inspect” and that the most time-consuming part of their job is research and analysis. Knowing that is the case, everyone can appreciate that the more information the appraiser is provided early in the process, the greater the likelihood of shortening the turnaround time.
Collaboration and cooperation is the key. The more appraisers understand about a lender’s business challenges and vice-versa, the better the experience will be for everyone! It is tough in our industry these days and working together in a collaborative effort toward a common goal is the best way to have a positive and productive business experience.