What is an Appraisal?
An appraisal is a professional appraiser's credibly supported opinion of a specifically defined value, based on research, and knowledge of the market area coupled with professional application of generally accepted, sound appraisal practices. The Uniform Standards of Professional Appraisal Practice (USPAP) are considered to be the minimum acceptable standards for appraisals under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA).
There are rare instances in which USPAP conformity is not required by a specific client. For example, the IRS does NOT currently (2009-2010) require USPAP compliance for appraisals submitted in support of tax return-related real property or business entity fair market values (FMV).
Having pointed that exception out, I strongly caution all readers and all intended users of real property appraisal reports, that the reported appraisal results may not be reliable if the appraisal and appraisal report fail to meet the minimum acceptable standards established by the appraisal profession, and the Congress of the United States of America.
The State of California (as well as most other states) has incorporated the requirements of USPAP in their own state appraisal regulations.
Be extremely suspicious of appraisal reports that claim to be exempt from USPAP, or that purport to comply ‘with most of the relevant’ requirements of USPAP. Keep in mind that USPAP are the minimum standards acceptable. Good appraisers exceed the minimum standards.
The preparation involves research into appropriate market areas, assembly and analysis of information pertinent to a property and the knowledge, experience and professional judgment of the appraiser.
The role of the appraiser is to provide objective, impartial and unbiased opinions about the value of real property - providing assistance to those who own, manage, sell, invest in and/or lend money on the security of real estate.
Our appraisers are required to be state licensed or certified in order to provide appraisals to federally regulated lenders. They have fulfilled rigorous educational and experience requirements and must adhere to strict standards and a code of professional ethics.
A written appraisal report generally consists of:
- A description of the property and its locale
- An analysis of the "highest and best use" of the property that considers ALL restrictions on its use and potetnial marketablity
- An analysis of sales of comparable properties "as near and similar to the subject property as possible"
- Information regarding current real estate activity and/or market area trends
- The value indicated by recent sales of comparable properties
- The current estimated cost of reproducing or replacing a building and any other improvements
- The estimated underlying site value of the property
- The value that the property's net earning power will support (for income producing properties)
In addition to residential or commercial appraisals - and depending upon an appraiser's designation and qualifications - he or she may be able to assist with the following:
- Advice in eminent domain and condemnation property transactions
- Feasibility studies
- Expert witness testimony
- Market rent and trend studies
- Cost / benefit or investment analysis, for example, what will be the financial return on remodeling
- Land utilization studies
- Supply and demand studies
- Replacement Cost Value
- Tax issues related to real property value