How Do You Determine the Market Value of Property?
The appraisal steps taken to determine the Fair Market Value of property are well-defined. These steps are part standard process, part research and part art, and the quality of each is demonstrably dependent on the experience and judgment of the real estate appraiser.
In addition to listing these steps with a brief introduction on this page, we’re documenting them in a series of posts (as an Appraisal Process Tutorial) over the next few weeks and months. Our website software should interlink the posts together, to make finding them and reading them in order (or out of order, if you wish) easy.
Steps of a Real Estate Appraisal
Prior to Visiting the Property:
- Pull subject data detail. The subject in this case is the property to be appraised.
- Research active, pending, and closed sales for the neighborhood (defined market area) for the last six months.
- Select comparable active, pending, and closed sales for the last six months. Comparable sales are properties that have characteristics that are similar to the subject property.
- Take exterior photos of subject, including a street scene that shows the general character and condition of the neighborhood.
- Measure exterior of home.
- Take interior photos of subject, including photos of the kitchen, bathrooms and the fireplace.
- Drive neighborhood (market area) and take exterior photos of comparable sales.
- Research general data for neighborhood.
- Pull specific market data for comparable sales.
- Begin reporting process.
- Upload photos.
- Pull and upload plat map. The plat map shows the boundaries of each property and how they are oriented relative to each other.
- Pull and upload survey map (when available).
- Pull and upload location map.
- Pull and upload Flood map.
- Enter sketch (the diagram of the house) into sketching software to calculate square footage.
- Confirm the Legal description of the property – usually (in Texas) defined as Lot X, Block Y in Section Z of Subdivision G, where X, Y, Z and G are the specific detaisl for the subject property. This information and the plat map make certain the subject property is the one being appraised.
- Read the sales contract information if the appraisal is for a purchase transaction.
- Write neighborhood description.
- Write market description
- Write the site description
- Write a description of Improvements
- Use the Sales Comparison Approach.
- Make adjustments to the comparable properties to account for extra bathrooms, additional (or less) square footage, etc.
- Analyze previous sales/transfers of the subject property.
- Apply the Cost Approach to arrive at an additional determination of value.
- Apply the Income Approach if this is an investment property.
- Record a thorough explanation of adjustments in the report.
- Perform the process of Reconciliation which means the appraiser weighs the results of the three different approaches to value and arrive at an opinion of value. Please note that this is not simply an average of the three values.
At the Property:
After Visiting the Property:
These steps may take half a day for an experienced appraiser appraising a property in an area where the homes are very similar and sell frequently.
It could take a day or more for a custom or unusual home in with acreage in an area where data to support an opinion of market value is far more difficult to obtain and to analyze within the constraints of the current market in the area. Ultimately, the time necessary to perform an appraisal is heavily dependent on the expertise of the appraiser. Organized, efficient and methodical approaches to appraising property will lead to more reliable and defensible opinions of Fair Market Value.
Select Your Appraiser Carefully
When you choose Appraisal IQ for your real estate appraisal services, you’ve made an Intelligent Choice and you can be confident that your property is in good hands.