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Things that an appraiser must always do under Uniform Standards of Professional Appraisal Practice, as required by the Kentucky Real Estate Appraisers Board ( www.kyappraisersboard.com)
- Identify the Client and other intended users of the analysis and report.
- Identify the intended use of the opinions and conclusion (i.e. mortgage loan, establishing a sale price for listing, litigation or property settlement, etc.).
- Identify the purpose of the assignment (market value estimate, foreclosure value, insurance value, etc.) .
- Identify the effective date of the opinion and conclusions (now, the date of death for the owner for an estate, any other meaningful time).
- Identify the characteristics of the property which are relevant to the purpose and intended use noted above, including
- the property's location and physical, legal and economic attributes;
- the real property interest to be valued (fee simple of the whole, a partial interest, a leasehold interest...etc.);
- any personal property, trade fixtures, or intangible items which need to be valued but which are not real estate;
- any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances or other items of a similar nature;
- whether the subject is a fractional interest, physical segment, or partial holding Identify the scope of the work necessary to complete the assignment as defined above.
- Identify any extraordinary assumptions or hypothetical conditions necessary in the assignment.
- Analyze any current Agreement of Sale, option or listing of the property.
- Analyze prior sales of the property for the past 3 years (except 1-4 family residences where only one year is required).
- Reconcile the quantity and quality of data, the appropriateness of the analysis and the conclusions.
Thing that an appraiser will almost always do, when appropriate, but may omit if it does not result in a misleading analysis, conclusion and report.
- Analyze existing land use regulations, and reasonably probable modifications, economic demand, and physical adaptability of the real estate, as well as market area trends.
- Develop an opinion of highest and best use (required in Market Value Estimates).
- Collect, Verify, Analyze and Reconcile such data as are available to perform, where appropriate, the following:
- A Sales Comparison Approach
Concept: "No prudent purchaser would pay more for a property than that amount of money required to buy a similar property in a similar location".
- Included you may expect detailed illustrations of comparable sale, probably photographs, and an explanation of any required adjustments.
- A Cost Approach
Concept: "No prudent purchaser would pay more for a property than that amount of money required to acquire a similar site and construct similar improvements, account for any physical, functional, or economic or locational depreciation".
- Included you may expect a site value and data to support it, the cost new of the improvements, an estimate of their effective and actual ages, an estimate of any form of depreciation (difference between cost new and the contribution of the constructed improvements as of the date of the value estimate) which exists.
- An Income Approach
Concept: "The value of a property may be said to be the present worth of the economic benefits which will accrue to the owner over a typical investment period".
- Included you may expect a discussion and analysis of the current and relevant income and expense history of the property, documentation of competitive market rental and expense information, an estimate of the potential income of the property, a clear and detailed illustration of the expenses which are required to sustain that income, and the development of capitalization or discount rates from market based data.
This partial but essential list of the minimum requirements for an appraiser should give you some insight into the nature of the work involved in forming a value conclusion.
The Report of the work described above is what most people think of as an "appraisal". It may come in a narrative (written) format or in a form report. All reports must fall into one of the following three options:
Self Contained Report - In which everything the reader needs to know is described in detail in the content of the report. Generally, longer, more expensive, and limited to certain appropriate applications.
A Summary Report - In which everything the reader needs to know is summarized in report. Generally, shorter, less expensive, and most frequently used.
A Restricted Report - In which only limited information from the analysis and conclusion is included in such a limited format as to be misleading unless the reader has access to the appraiser and his workfile. Used only where the Client is the only intended user, this is the least expensive reporting format.
Which format to use depends of the intended use and users and can be discussed with our staff by phone, fax or e-mail.
Some final thoughts which relate to all appraisals:
-Kentucky has three categories of appraisers. Licensed and Residential Certified appraisers can do homes and small commercial (less than $250,000) properties, if they have the requisite knowledge to accept the assignment. General Certified appraisers are technically approved for all types and sizes of properties, with out regard to value.
-Appraisers must always confirm that they are competent to perform the services being requested, regardless of their Certification level.
-Appraisers have a strict Confidentiality requirement limiting their disclosure of information to their Client, courts of competent jurisdiction (by subpoena) and the regulatory agencies which oversee their activities.
-Appraisers have strict ethical requirements.
For more detailed information, contact our office or the www.appraisalfoundation.org or the www.kyappraisersboard.com. For a greater understanding of the process or if you have interest in becoming an appraiser, you may want to attend an educational seminar. See www.wilsonedgroup.com.
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