The appraisal process and appraisal standards

Define the appraisal problem

An appraisal is an opinion of a defined type of value for specified property rights as of an effective date. It is not a promise of a sale price. Begin by identifying the client, intended users and intended use, the property and interest appraised, the type and definition of value, the effective date, and relevant assignment conditions. The effective date describes when the value opinion applies; the report date describes when the report is issued.

Develop a supported opinion

Determine a scope of work sufficient for credible results: the research, inspection, verification, and analysis the assignment needs. Collect and verify property, neighborhood, market, and comparable data. Analyze highest and best use through four tests: legally permissible, physically possible, financially feasible, and maximally productive. For improved property, consider the site as vacant and the property as improved.

Apply the valuation approaches relevant to the assignment. The sales comparison approach analyzes comparable transactions and adjusts for differences. The cost approach combines land value with improvement cost less depreciation. The income approach converts anticipated income benefits into value. Reconcile the applicable indications by evaluating their reliability and relevance; do not mechanically average them. Communicate the conclusion and its support in a report suited to the intended use.

Standards and independence

The Uniform Standards of Professional Appraisal Practice, or USPAP, address ethical conduct and credible appraisal development and reporting. Competency, impartiality, an adequate scope of work, and a supporting workfile matter throughout the assignment. An appraiser must not agree to deliver a predetermined value or make compensation contingent on reaching the client's desired result. A client may provide relevant evidence, but the appraiser evaluates it independently.

For federally related transactions, 12 U.S.C. § 3331 states the federal purpose: written appraisals performed under uniform standards by competent individuals subject to effective supervision. Section 3350 defines a written appraisal as an independent, impartial opinion of defined value for adequately described property on a specific date, supported by relevant market information. A federally related transaction must meet the federal regulatory connection and require an appraiser's services. Do not assume every real estate transaction is in this category.

An inspection supplies observations; an appraisal adds valuation analysis. The final opinion follows evidence, not the contract price or the loan amount the client hopes to obtain.