Writing an Appraisal ReportHello and welcome back! We've made it to the final and most important step of the appraisal process. After gathering the subject's data in Tutorial 1: Prior to Visiting the Property and performing the appraisal inspection in Tutorial 2 (at the Property), we've arrived at the last step: writing the appraisal report.
Tutorial 3: The Appraisal ReportBefore we write the report, we need to:
- Upload photos into the appraisal form filling software.
- Pull and upload plat maps (if available).
- Pull and upload survey map (if available).
- Pull and upload location map indicating the location of the subject, and comparable sales.
- Pull and upload Flood map into the form.
- Enter the house sketch into sketching software to calculate the gross living area. (No, we do not do this calculation manually!)
- The legal description of the subject property.
- Sales contract information if “purchase” transaction.
- A brief description of the neighborhood.
- Market description (condition of the economy, interest rates, available financing, etc.).
- Site description (size, topography, zoning, views, and available utilities).
- Improvements description (size of home, age, construction materials such as: foundation, roofing, flooring, walls, and wainscoting; Amenities such as: fireplaces, sprinkler systems, pools, fences, decks, patios; Heating and cooling systems.
- List of needed repairs if any, recent updates if any, or proposed improvements if any.
Analyze and Adjust: The Three Approaches to ValueAppraisal Practice has three approaches to value for determining the Market Value of Real Estate. For more information, please read our page on Approaches to Value.
- Perform the Sales Comparison Approach (list all comparable sales in what is known as the grid) listing all the different amenities and features of all comparable sales.
- Make adjustments for all the differences such as: sales concessions, location, lot size, views, quality, age differences, condition, size differences, room count differences, and amenities such as HVAC systems, parking facilities, decks, patios, sprinkler systems, pools, spas, etc.
- Analyze previous sales/transfers: 36 months (3 years) for the subject property, and 12 months (1 year for the comparable sales).
- Perform the Cost Approach. Although the appraisal process is not an exact science, we can derive construction costs from a special handbook called the "Marshall & Swift Residential Cost Handbook", this is an excellent source for construction costs to figure out what the replacement cost of your home would be, and adding in the land value either by the extraction method, or by reviewing current land sales in the submarket.
- Perform the Income Approach (if this property is investment property).
- Thoroughly explain all adjustments made.
- And finally, perform the Reconciliation or final estimate of market value.