What is an appraisal? Simply put, an appraisal is an opinion of value. The appraisal
report, however, is the
written document that presents the appraiser's analysis. At Elliott Appraisals, our appraisals are developed in accordance
with the
Uniform Standards of Professional Appraisal Practice (USPAP),
and are prepared by, or under the supervision
of, a State Licensed or Certified Appraiser. How does the appraiser estimate value? Generally, there are three basic approaches to value. The Cost Approach,
the Direct Sales Comparison Approach, and the Income Approach.
The appraiser
will utilize one or more of these methods (defined below), by
weighing the strengths and weaknesses of each approach. Within the Cost Approach, the appraiser will first estimate the value of the
land, then calculate the cost to replace or reproduce the building and any
site improvements. Finally, deductions will be made for depreciation and/or
obsolescence of the improvements. The Direct Sales Comparison Approach (also known as the market approach)
utilizes recent sales of other properties that are similar or comparable
to the property being appraised. This approach is typically the primary
method used for valuing single-family residential properties. The appraiser will make adjustments to
each of these sales for differences (i.e. size, quality, condition, location,
changes in market conditions, etc.), which will provide a range of value
indications for the property being appraised. The appraiser will correlate
this range into a single value indication.
The Income Approach is based on the assumption that an investor owns the
property being appraised. The income that could be generated by the
property is the determining factor in estimating value from this approach.
There are a variety of methods that can be utilized in the Income Approach,
but the most common is Direct Capitalization. Through Direct Capitalization, the appraiser will consider any current leases
that encumber the property and will analyze rents of similar properties to
estimate the potential rental income that could be generated by the property
being appraised. Deductions will be made for vacancy and operating expenses
to derive at a net operating income. Value is estimated by capitalizing
this income figure (dividing net operating income by a rate of return demanded by
the market).
If you have questions about real estate appraisal - our we provide
you with solutions. Call (866) 895-9046, or e-mail
michael@midwestappraiser.com