The First Steps of An Appraisal
In this series of Appraisal Process Tutorials, we will review the Residential Appraisal Process for real estate.
You can find the summarized list of steps on the page, Appraisal Steps: Determining the Market Value of Property.
Texas Appraisers are licensed through the Texas Appraiser Licensing and Certification Board, with requirements set forth by the Appraiser Qualifications Board (AQB). Appraisers strictly adhere to the guidelines in the Uniform Standards of Professional Appraisal Practice (USPAP). The combination of licensing standards and appraisal practice standards means that appraisal practice across the country is very similar. Although we appraise property in Austin and Central Texas, these steps will closely match the process of other real estate appraisers in any other state.
Different Properties, Same Steps
Although each property is different from the next, the steps for a typical real estate appraisal are very similar.
You might think it gets a little repetitious, and it certainly can. This repetition, however, builds expertise in a market area. Any licensed appraiser can set forth an opinion of value on a property. The opinion that carries the most weight, however, is the one from the appraiser that has performed so many appraisals in a market area (city, town, county, region) that he or she can draw the area map, or most of it, on the back of his/her hand. This is the type of appraiser that studies the market, the numbers, the economics, the population patterns, and this, of course, is the type of appraiser you want to appraise YOUR property, or the property of your clients.
29 Steps, 3 Appraisal Process Tutorials
In this series of articles, we will group the 29 steps of an appraisal into three sets, with each set being the focus of an Appraisal Process Tutorial:
- Tutorial 1: Prior to Visiting the Property (Steps 1 through 3 of 29)
- Tutorial 2: At the Property: The Appraisal Inspection (Steps 4 through 7)
- Tutorial 3: After Visiting the Property: The Appraisal Report (Steps 8 through 29)
Tutorial 1: 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.
Usually this data is gathered from the county assessor’s office, builders, and/or the local MLS (multiple listing service). In Central Texas, the local MLS is called ACTRIS (aka MLXCHANGE) and is provided via ABoR (the Austin Board of REALTORS®). This data provides the appraiser with information on what to expect: the size and type of property, location, style, etc., essentially setting the playing field for the appraisal. With this information, the appraiser has an idea of the amount of time that may be required to complete the assignment, and can schedule the inspection at a time when he will have a comfortable amount of time to perform the steps at the property location.
This information also comes primarily from the local MLS. Closed sales are far more compelling for helping to determine market value of a property than pending sales, or active listings (properties that are not yet under contract). The fact that another property sold at a particular price says that the Market Value of that property was the selling price. Each sale defines the price someone was willing to pay for a property. The collection of these data points provides evidence for helping determine the market value of another, similar property.
The analysis that leads to the selection of the best comps will include: Actual days on the market for all active listings, pending sales and closed sales (from the low, to the high, and median), Sales Price to List Price ratio (low, high and median), List Price (low, high, and median), Sales Price (low, high, and median). After all the data is analyzed, the appraiser determines what the value range for the property will most likely be, based on different factors such as: differences in quality and workmanship, condition, age, size, improvements, room count, and additional amenities. Other factors taken into account would be market conditions, interest rates, and of course the state of the local, and national economy (the effect on the marketing time for the subject).
Our most common appraisal is a mid-sized home in a relatively uniform subdivision, built since 1990. We also see a lot of older homes, acreage, and custom homes with characteristics that make the appraisal process more challenging (and also more interesting). Some of these can actually be fun, and we enjoy driving out to places like Lago Vista to appraise lake-front condominiums. Feel the breeze!
Please see the Related Posts at the end of this article for the next steps the in appraisal process.