What is an Appraisal?
An appraisal is a formal and impartial estimate or opinion of value, usually written, of an adequately described property, as of a specific date, and supported by the presentation and analysis of relevant data. It is prepared by a qualified individual for reliance by identified parties for which the appraiser accepts responsibility.
Steps in the Appraisal Process
1. The Inspection - A thorough inspection of the property being appraised is completed to identify the location, any positive or negative influences affecting the property and the improvements to the property including the type of dwelling, number of rooms, room layout, basement development, garages, the condition and quality of finishing of the interior and exterior.
2. Data Collection and Analysis - Information regarding the city/town, neighbourhood, services and utilities available, the address, ownership, land use classification, site dimensions and area, legal description, property taxes and assessment, age of the dwelling, purchase price and sale date, previous MLS history, current real estate market data, comparable sales and listings are gathered and analyzed.
3. Direct Comparison Approach - The value estimate in this approach is based on the selling price of comparable properties. Sales and listings in the area are researched to find properties which are the most similar or “comparable” to the subject property being appraised. The condition and features of these properties are usually confirmed with the listing realtors. Using our appraisal methods to calculate the value of certain items such as dwelling size, features, upgrades and other value enhancing characteristics, the differences between the comparable sales and the subject property are identified and where there is value in those differences it is then adjusted for. An agreement among the adjusted values or a range of value may result.
4. Cost Approach - The value estimate in this approach is based upon the cost to construct a property based upon a costing manual and/or builders data. If the property is existing, a depreciation is added based upon age, condition and functionality.
5. Income Approach - The income approach is a methodology that estimates the market value of a property based on the income of the property. The income approach is an application of discounted cash flow analysis in finance. With the income approach, a property’s value today is the present value of the future cash flows the owner can expect to receive. Since it relies on receiving rental income, this approach is most common for commercial properties with tenants.
6. Final Estimate of Value - To arrive at a Final Estimate of Value, the appraiser selects the value by applying greater weight to one or more of the comparable sales or equal weight on all of them based on a variety of criteria such as which sales were the most similar to the subject, required the least amount of adjustments or the most recent.
7. Completion of the Appraisal Report - An appraisal report, whether it is a residential reports or a commercial report contains the written report with addendum's that can include interior and exterior photo’s, city/town maps, neighbourhood map, site map or plan of subdivision, aerial or satellite map, a drawing / floor plan of the dwelling or a registered condominium plan, comparable sales map and comparable sales photo’s or listing/feature sheets. The entire report is reviewed and signed. The outcome of the appraisal is communicated to the client and the report is delivered.