What Does A Real Estate Appraisal Include?

What Information Is Included In A Real Estate Appraisal Report?

This is a question I often get when someone is ordering an appraisal. I perform appraisals for multiple reasons, including estate planning, probate, divorce, PMI cancellation, pre-listing, and pre-purchase.

What Does A Real Estate Appraisal Include

Appraisals are not something most people order on an ongoing basis so they are not really familiar with everything that is included. Because so many people have asked me, “What does a real estate appraisal include?” I thought it would be a good idea to create a blog post to help everyone that is curious.

Appraisal Process

The appraisal process consists of the appraiser visiting the property to collect information to help them complete the report. I’ve written other posts about the actual property visit and everything that goes on so I won’t dive into that here.

The property visit, or observation as we like to call it, is the first part of the assignment. This is the part of the appraisal that most people see, however, this is only about a fourth of everything that goes into the appraisal report.

The other part of the appraisal process that no one sees is the research, analysis, and write-up. Appraisers are required to verify the information used in the report to make sure the data is accurate.

The information about each comparable sale helps us to make adjustments when comparing it to the subject property. If this information is not correct our opinion of value will not be accurate or credible.

After the appraisal is complete the report will be delivered to the client in a hard copy format or by email. Delivery by email is the most common these days due to cost and convenience, however, the report is identical no matter how you get it.

So now that you know the basic steps the appraiser takes to complete the report we’ll take a look at what you will get when it is completed.

Information contained In The Appraisal Report

The first part of the report (after the title page) will be the information about the subject property. This will include the address, legal description, property taxes, and other information pertinent to the property.

Depending on whether the appraisal is for a purchase or if the appraisal is for an individual that needs one for private use, the next information will be pertaining to the contract data. If the appraisal is for private use, information about the intended use and user, as well as what approaches to value were used, with be provided.

Next, information about the neighborhood is provided. This includes characteristics of the neighborhood such as whether it is an urban, suburban, or rural location, development density, and growth trends.

Trend information on property values, demand & supply, and marketing time comes next. This helps paint a picture as to what stage of growth the neighborhood is in, whether it be growth, stability, decline, or renewal.

How appraisers reconcile valueThis information is helpful when the appraiser reconciles the final value estimate. In addition, the range of age and prices of the homes as well as present land use is disclosed.

The next section of the report describes the land that the house is situated on. This includes the size, shape, and topography as well as what type of utilities are present. Lastly, the flood hazard status is shown.

The largest section of the first page of the appraisal report describes the physical characteristics of the house. This information is collected when the appraiser is walking through your house from room to room.

This section describes the materials of construction and condition of the house as well as the room count and gross living area. This is an important section because it lays the foundation for the appraiser to compare the subject property to the sales used and determine how it ranks which helps in the reconciliation process.FUNCTIONAL OBSOLESCENCE

The last part of the improvements section discusses any depreciation the subject may suffer from. This includes physical, functional, and external depreciation.

Moving on to the next page brings us to the sales comparison approach. This is the approach that everyone associates with an appraisal.

Most people know what “comps” are. This section of the report has all of the information about the sales comps and how they compare with the subject property being appraised.

In each column, there may be a dollar figure next to the different features with either a ‘+’ or ‘-‘ depending on how it compares to the subject. A plus sign means that it is inferior to the subject and a minus sign means it is superior to the subject.

The dollar figure represents the contributory value of that feature. If the subject property has less square footage than the comp the comp will have a negative sign next to the contributory value of the additional living area.

The contributory value of the additional features is what appraisers spend much of their time determining. There is no “one size fits all” adjustment for different features because each property and market is different and buyers in one market may pay more for certain features than they do in another market.

After all of the adjustments are made there is an adjusted range of value. The appraiser then reconciles a final opinion of value within this range based on multiple factors including design and appeal of the house, quality of construction, condition, and supply & demand among other things.

The Cost Approach and the Income Approach are the last two approaches to value. The cost approach reflects the cost of constructing the property and includes land value as well.

The Income Approach provides a value indication based on the income-producing capabilities of the property. Not all appraisals will include the cost and income approaches to value, however, if they are relevant to the assignment they will be included.

The rest of the report consists of various certifications as well as photographs, building sketches, and maps. These exhibit pages help the reader to understand the layout of the floor plan, what the interior looks like (including features and quality of construction), and where the property is located in relation to the comps.

The report contains all of the necessary information to describe the property and support the value opinion that the appraiser arrived at. The value opinion is based on market data and utilizes the appraiser’s education and knowledge of the market to estimate the value of the property based on what other comparable properties have sold for.

Most appraisal reports include similar information to what I have described here, however, they may be formatted differently. My description of what a real estate appraisal includes is based on a typical 1004 Fannie May appraisal form.

Depending on the complexity of the assignment some appraisers may utilize a narrative report. This type of report consists of the same information as a form report but it is written in narrative format and laid out more like a book. It allows for a more in-depth explanation of the various parts of the report. This type of report typically costs more than a form report.

Questions?

I hope my explanation has been helpful in describing everything that a real estate appraisal includes. If you have any questions feel free to leave a comment below or connect with me offline. As always, thanks for reading.

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