Three Approaches to value are considered:
The Cost Approach whereby the value of the lot is estimated based upon Sales, Allocation or Extraction methods. The cost of the developed site is then added to the cost of the building and site improvements computed using quarterly updated builder's construction cost services. Estimated depreciation is then subtracted. This method is more relevant for new construction or homes that are just a year or two old.
The Income Approach is an analysis of market rents and their relationship to sales prices. This is particularly important in the appraisal of income producing properties like resort homes, multi-unit properties or commercial properties.
The appraisal of your home will most likely rely solely or in large part upon the Sales Comparison Approach. The Sales Comparison Approach is prepared by researching sales that have occurred over a 24 month period to establish the trend in values. Homes sold in "non-arms length" transactions and under duress are eliminated from the analysis. This large volume of sales is then used to isolate the incremental value contribution to the whole of various features and to understand the forces at work in this market over a period of time. Although a large volume of sales were studied only the most relevant indicators of the subject value were selected and cited in this report. The other sales serve as supporting evidence retained in the appraiser's files. Because this is a "Summary" of a "Complete Appraisal" it lists only the most relevant data.
Researching the appraisal is done by searching, reviewing and analyzing various data sources including MLS, municipal data and commercially available resources. The appraisal relies on data obtained from these sources, much of which has been verified through multiple sources. In addition, consultation with competent real estate professionals and government officials is made to obtain or verify information. Comparable sales descriptions are obtained from these sources and the exterior observation of the sale properties. A diligent effort is made to uncover and verify all relevant factors in describing and estimating the value of the subject within the time limitations of the assignment. The Sale dates noted are the settlement dates.
The valuation analysis will contain cited sales that include sales of homes that are marginally superior to the subject and marginally inferior to the subject thereby establishing a narrow bracket of high and low value wherein your home's value lies between. A larger poplulation of sales is analyzed and paired sales analysis is used to isolate the incremental value contribution to the whole of features not shared by the subject and the cited comparable sales. The incremental value contribution to the whole of the various variables are then added or subtracted as adjustments from/to the raw sales prices of the cited comparable sales which further narrows the range of indicated value.
Because settled sales can be very old considering that the actual agreement to purchase may have occurred many months prior to settlement and under vastly different market conditions it is also deemed prudent to analyze a significant number of expired, withdrawn and current listings to identify the upper limit of value, current market trend and competing supply. Expired and withdrawn listings of similar homes give evidence of what the market will not pay for a home with similar characteristics as the subject thus helping to establish the upper limit of value for the subject. Current listings reveal the direction values may be going and give an indication of supply and demand factors. They also indicate the lowest price one may currently pay for a comparable property giving additional support to the establishing the ceiling of the valuation bracket. An analysis of the current supply fo similar competing active listings provides and indication of the current absorption rate.
Appraisals made for lending purposes intended for federally regulated institutions or transactions have strict guidelines regarding ratios and percentages of adjustments. Only settled sales can be used as "primary" data and they must have occurred within the past 12 months as a maximum. Older sales, active listings and expired listings can be cited in the analysis as "supplementary" data.
The analysis and correlation of all this data is then used to provide a clear and accurate identification of the forces currently at work in the market and to provide a supported and defensible opinion of the subject value.
The completed appraisal must conform to the Uniform Standards of Appraisal Practice and the appraiser must be able to prove he has the geographical competency, experience and appropriate license level to provide a supported and defensible Opinion of Value for this type of property if challenged by the state Board of Appraisers.
In the case of appraisals for mortgage lending, the appraisal typically goes to a third party reviewer who will verify the ratios, percentages and math computations as well as compare it to an Automated Valuation Model. When that is complete, usually within hours, the appraisal is forwarded on to a mortgage underwriter for further analysis required to render a loan decision and then it is on to the branch of your lender that is processing your mortgage.
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