If you’re a property owner, determining the accurate value of your properties is crucial for making the smartest financial decisions and planning for your future.
An appraisal report can help you understand the value of your commercial and residential properties. In this article, we’ll focus on explaining the former.
Here’s what an appraisal report is, the types of appraisal reports, and how to get started with the right appraisal report that best suits your needs.
Why Might I Need An Appraisal Report?
Anyone with a need to understand the value of a property might find themselves in need of an Appraisal Report.
A local real estate broker may help you determine if a small repair will add value.
However, in many cases, such as lending, determining an asking or offer price, or when considering a major renovation, you may wish (or be required) to have a commercial appraisal report completed by a professional real estate appraiser.
Lenders, Property Owners, Investors, Business Operators, and others use these reports to guide their financial decisions and business planning.
An Appraisal Report, according to the Uniform Standards of Professional Appraisal Practice (USPAP https://uspap.org), is “any communication, written or oral, of an appraisal or appraisal review that is transmitted to the client or a party authorized by the client upon completion of an assignment.”
Many people think of an appraisal report as a document written by an “appraiser,” which provides the value of a property. The truth is, an appraisal report is only one possible product of the entire appraisal process, but more on that later.
An appraisal report is most often found in the form of a document that summarizes or states the steps taken and information considered in the development of an opinion of value.
An Appraisal Report can take many forms, determined by its intended use and the needs of the client.
What Form Does An Appraisal Report Take?
Just as USPAP has a definition for an Appraisal Report, it also provides the definition of an Appraisal; “the act or process of developing an opinion of value.”
That’s a pretty short definition, but an accurate one. In order to develop an Appraisal Report, an appraiser must complete an appraisal. The appraisal is a process starting with the engagement of the appraiser to complete the assignment and is comprised of all the steps taken to develop the final opinion of value and deliver a completed report.
These steps range from conducting basic and in-depth research and visiting a property, to gaining an understanding of the neighborhood and market area in which the property is located, to investigating and understanding the trends of buyers and sellers. All of this is an effort to provide the client with the most reasonable and credible estimate of value for the subject property.
So, an Appraisal Report is the oral or written report by an appraiser which conveys the results of an appraisal process. An appraiser cannot simply declare the value of a property without first completing the Appraisal Process. But once the process is complete, the appraiser can confidently deliver the completed Appraisal Report.
What Types Of Appraisal Reports Are There?
These forms are not defined by the actual form utilized or the number of pages of a report, but rather by the depth of reporting within the report.
An Appraisal Report will summarize the appraisal process and data considered, while a Restricted Appraisal Report may simply state much of the information.
While an Appraisal Report may have more than one intended user, a Restricted Appraisal Report will be restricted to a single intended user, and it is often understood or assumed that the intended user will have adequate knowledge of the subject property to fully understand the reasoning and conclusions that lead to the final value opinion.
An Appraisal Report must include adequate content so that any reader may understand the nature of the subject property and all of the data and methods employed that lead to the final value opinion.
What Type Of Appraisal Report Do I Need?
This is a question that will be answered by both the client and appraiser. Once the appraiser understands the intended use and intended user(s) of the Appraisal Report, the form can be decided upon.
The Restricted Appraisal Report
Property owners who are curious about the market value of their property, or want to know if the value will be affected by a change such as building an addition, adding a garage, etc., might require only the Restricted Appraisal Report, since the intended use of the report can be achieved with this brief format.
The Appraisal Report
Lenders who may be considering providing a loan for the purchase of a property and who might need to understand their position should the borrower default will want the more detailed Appraisal Report. Whenever there is more than one intended user, such as a loan with multiple banks participating or a loan insured by the Federal Government, a Restricted Appraisal Report will not be allowed and the Appraisal Report format must be used.
In short, the needs of the client, the number of intended users, and the client’s understanding of the subject property and market area all factor into the decision as to which appraisal report format is used.
Keep in mind that regardless of the report format, a full and complete appraisal process must be conducted and the process is mandated and regulated by many different government agencies and client requirements.
What Will I Find In An Appraisal Report?
As stated earlier, an Appraisal Report is comprised of statements or a summary of the steps taken to arrive at the final opinion of value. USPAP provides guidance to appraisers as well as regulations that ensure appraisers complete a fair and unbiased analysis.
Letter of Transmittal
A typical appraisal report includes a letter of transmittal which outlines the subject and assignment, identifying the client, subject property, type of value being estimated, pertinent dates and will identify the appraiser.
Summary of Appraisal Results
Next, the report will provide a summary of the appraisal results, usually followed by an explanation of how the report meets:
- Necessary regulatory standards
- The scope of the appraisal process
- Neighborhood and market area analysis
- Description of the property site and improvements (including such things as Zoning, whether the subject property is situated in a flood plain, or is affected by any factors within or outside of the site itself)
There will be a discussion of the current real estate tax position of the property and an opinion of the Highest and Best Use of the subject property.
Appraisal Approach to Value
All of the previous steps lead up to the development of the selected appraisal approaches to value. Any or all of the three approaches to value (Cost, Sales, and Income) may be employed by the appraiser in the development of the final value opinion. The resultant values as derived by the development of the selected approaches to value will be reconciled and the final value opinion stated.
Exhibits such as photographs, maps, charts and tables, historical documents related to the project, and other documents may be included in part or in whole within the report or in an Addendum.
Certification of Value
Lastly, the report will include a Certification of Value, indicating the names and level of involvement of all persons signing the Appraisal Report or providing significant appraisal assistance to those who sign, and will typically include the appraiser’s license information and qualifications or resume.
How Do I Get An Appraisal Report For My Property?
A great real estate appraiser will be able to answer all of your questions as well as ask you questions pertaining to your particular appraisal project.
Together you will determine how an appraisal can help you and the type of Appraisal Report that will best meet your needs.
Appraisers must be ethical, competent, knowledgeable of all regulatory standards, and familiar with your property type and the market area surrounding your property before they can accept an appraisal assignment.
The right appraiser will be happy to provide you with his/her qualifications, answer all of your questions and assist you in engaging appraisal services as well as being accessible and transparent during the appraisal process.
If you would like to get started or learn more about the appraisal process or the services that Standard Valuation Services can provide to you, please reach out to us today and we’ll be happy to assist.
Want to learn more?
Get The 2021 Property Owner’s Appraisal Guide here free!