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An appraisal is a formal, 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 as a result of a retainer, for reliance by identifiedÊ parties, and for which the appraiser accepts responsibility.
Types of appraisal reports
While professional standards do not dictate the form, format or style of reporting, the appraiser is bound by certain recognized rules as to content.
The extent to which this content is detailed will determine the appropriate type of appraisal report to be prepared. Typically, types include a bound narrative - from concise and briefly descriptive to comprehensive and detailed - and a form report generally used to support a residential mortgage application.
Any limitations imposed on the assignment may affect the level of risk accepted by each party to the assignment. In every case, however, the appraiser must comply with the standards of professional practice.
Most appraisals are Full Narrative reports, appropriate where all aspects of an assignment are researched and reported. No modification or exclusion of a Standard Rule (requiring what is referred to as an Extraordinary Limiting Condition) is permitted in a Full Narrative report.
A regular Narrative report may provide details generally equivalent to a Full Narrative, but is distinguished by the invoking of an Extraordinary Limiting Condition. Examples would include situations where no title search is made, or where no interior inspection of a building was possible.
A Short Narrative report is concise and briefly descriptive.
A Form report is generally represented by its standardized format combining check-off boxes and narrative comment.
What reports contain
All reports contain the following:
- the estimate of value
- the effective date of the appraisal
- the certification and signature
- the purpose of the appraisal
- the qualifying conditions
- the condition of the neighborhood
- an identification of the property and its ownership
- an analysis and interpretation of the data and the assumptions made
- the processing of the data by one or more of the three approaches to value
- other descriptive support material such as maps, plans, charts, photographs, etc.
The residential appraisal form report
This is a form completed by the appraiser on a residential property. The report includes general information, such as who owns the property, the address, legal description, taxes, assessed value and age of the dwelling. It also describes the neighborhood in terms of its age, distances to schools and shopping centres, common types of dwellings, services and utilities available, etc.
How value is estimated
There are three basic methods of arriving at an indication of value:
- The Cost Approach - estimates the cost to build a new building identical to the subject being appraised, at current prices, subtracting accumulated depreciation and adding the estimated land value.
- The Income Approach - relates to income-producing property and is based on the theory that value is the present worth of the income stream which the property is capable of producing when developed to its highest and best use. The net operating income from the property is capitalized into value by an appropriate method and rate.
- The Direct Comparison Approach - is based on the theory that an informed purchaser would pay no more for a property than the cost of acquiring another existing and equivalent property. The value estimate is based on the selling price and listings of comparable properties.
To arrive at a final estimate of value, the appraiser selects the value indicated by the approach most appropriate for the property and supported by the most reliable, factual and relevant market data, which has been analyzed and verified.
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