Valuation: The valuation process is the orderly program in which the data used to estimate the market value of the subject property are acquired, classified, analyzed, and presented.
The first step in the process is to define the appraisal - i.e. identify the real estate, the effective date of the value estimate, the property rights being appraised, and the type of value of the subject property. Once this has been accomplished, the appraiser collects and analyses the factors that affect the value of the subject property. three approaches to value are the sales comparison approach, the cost approach, and the income capitalization approach. The sales comparison approach is based on direct comparison of the characteristics of similar properties that have recently been sold and transferred in a competitive market.
In the cost approach, the cost new of the improvements are estimated and this figure is added to the land value to indicate the value of the subject property.
The income capitalization approach is utilized to compute the economic value of the property. The final step in the valuation process is the reconciliation or correlation of the value indications. In the reconciliation, the appraiser considers the relative applicability of each of the approaches used, examines the range of the value indications, and gives most weight to the approach that appears to produce the most reliable solution to the appraisal problem.
Self-contained format: A self-contained report contains, to the fullest extent possible and practical, comprehensive explanations of the data, reasoning, and analysis were used to develop the opinion value are described. It is the best type of report to provide if multiple clients or intended users will receive the report or if the intended users have limited knowledge of the subject property and its environs.
Summary format: This format contains summary discussions of the data, reasoning and analysis that were used to develop the opinion of value. It also includes summary descriptions of the subject property, the property’s locale, the market for the property type, and the appraiser’s opinion of highest and best use. Any data, reasoning and analyses not discussed in the summary appraisal report are retained in the appraiser’s work file. Summary appraisal reports may be appropriate when the report is to be used by a limited number of individuals who have some knowledge of the real estate and the local area and only a summary of the data, reasoning and analyses is required in the report.
Restricted format: A restricted appraisal report contains statements of the appraiser’s findings with virtually no explanation of the data, reasoning and analyses in support of the appraiser’s findings are retained in the appraiser’s work file. The restricted appraisal report may be useful when only the client is expected to receive or rely on the report, when the client understands the restricted utility of this option and when the intended use of the appraisal warrants restricted disclosure of the steps in and information considered in the appraisal process.