APPRAISERS:

COOPERATIVE APPRAISALS, Drew Hoffman

317.691.4219 office / 317.898.1242 fax

KENNEDY APPRAISAL SERVICES, Kathleen Kennedy

317.626.8183 Mobile / 317.576.0768 Fax

kappraisal@sbcglobal.net

RIGGS APPRAISAL, INC., Jeff Riggs

317.468.0655 Office / 317.468.0654 Fax

jeff.riggs@insightbb.com

THE APPRAISAL PROCESS:

STEP 1: 

Develop a clear understanding of the assignment:

• Define the purpose of the appraisal, i.e., How will the appraisal be used?

• Determine the exact location of the real estate.

• Determine the real property rights.

• Define market value.

• Define the date of valuation.

• Define the scope of the appraisal. 

• Define other conditions that would limit the reliability of the value conclusion.

STEP 2: 

Conduct a preliminary analysis to determine what data should be collected, as well as the quantity and quality of the data required to complete the appraisal. This will include general data about the region:

• The geographic location

• The history of the area

• Climate

• Educational facilities

• Health care facilities

• Religious facilities

• Public utilities

• Sports and recreation

• Arts and entertainment

• Retail areas and shopping centers

• The amount of business and industry

• Transportation

After collection, the data is analyzed and trends are determined regarding Social, Economic, Government and Environmental forces that can have an impact on value.

Social forces are influenced by changes in the growth or reduction in population and the characteristics of that population.

Economic forces influence the relationships between the current demand and supply for goods and services and the anticipated ability of the population to be able to pay for the goods and services it needs or demands.

Governmental forces - the legal climate and the political actions of government within the region can have very positive or negative impacts on value. 

Environmental forces that affect real property are directly related to the relationship between a property or neighborhood and all possible origins and destinations of residents going to or coming from a property or area within the region.

Specific data is collected about the Subject Property in regards to the site itself:

• Size and shape of the subject property

• Land topography

• Type of soil

• Streets and access to the property

• Utilities

• Site improvements (paving, curbs, sidewalks, street lighting, etc.)

Specific data is collected regarding physical improvements to the Subject Property:

• Type (residential, commercial, retail, industrial, etc.)

• Quality of construction

• Number of stories/levels

• Building area (size and # of rooms)

• Foundation type

• Floors, ceilings, interior construction

• Plumbing, HVAC and Electrical 

• Roof construction

Specific Data Regarding Comparable Properties:

• Supply and demand

• Number of proposed new properties

• Number of potential property users

• Future demand for the type of property

• Number of vacant properties

• Absorption rates

STEP 3: 

Analyze all collected data to determine the highest and best use of the property.

The concept of highest and best use is the key element in determining market value.  It is used to analyze what motivates buyers and what price they are willing to pay for unimproved and improved property. 

In estimating highest and best use, there are generally four stages of analysis:

1. The Use must be possible: What uses of the site are physically possible.

2. The use must be permitted (Legal): What uses are allowed by zoning and conversely eliminated by deed restrictions.

3. The use must be feasible: Of the physically possible and permissible uses, which of these uses will return a profit to the owner of the property.

4. Highest and best use: Out of all the feasible uses, which single use will return the greatest profit to the owner.

STEP 4: 

Once the highest and best use has been determined, the Appraiser values the land as unimproved.

Sales of other similar properties are analyzed (with the same highest and best use). Adjustments are made for different characteristics involved.

STEP 5: The Appraiser determines the market value of the land as improved by three different valuation methods.

1. Cost Approach

2. Sales Comparison Approach

3. Income Capitalization Approach.
   
   Cost: Under this approach the appraiser determines the costs associated with either replacing or reproducing the existing structures and site improvements and then subtracts from this value of the depreciation (general wear and tear) that has accrued to the property. The net result becomes, what is known as, the indicated market value.
   
   When properties are new, market values and costs usually are very similar because there is very little, if any depreciation accrued to the property. For this reason, the Cost Approach is important in estimating the market value of new or relatively new construction. It is also very important when appraising the market value of proposed construction, special-purpose properties (example - churches, bowling facilities and etc.). 
   
   Sales Comparison: this is the most common method used to estimate the market value of land and residential properties. The major premise of the Sales Comparison Approach is that the market value of a property is directly related to the prices of comparables and competitive properties. 
   
   When choosing comparable sales, the appraiser looks for properties with similar locations, size, utilities, zoning and physical improvements. The appraiser then makes adjustments to the comparables to reflect any differences between the property being appraised and the comparables that would have an effect on market value. Once the adjustments are made, the appraiser analyzes the adjusted values for each comparable and then determines the value of the property being appraised.
   
   Income Capitalization Approach: This approach to valuation utilizes different techniques and mathematical calculations that an appraiser would use to analyze a property's ability to produce income. The annual income and the expected reversionary value (value of the property when it is sold after a period of time) are converted into a value estimate.

STEP 6: The three approaches to value are reconciled into a final value estimate.

In order for the appraiser to form a defensible conclusion regarding the final value, the three approaches to value are analyzed based upon the following criteria:

1. Appropriateness: The appraiser determines how important each approach to value is with regards to the use and purpose of the appraisal in question.

2. Accuracy: The appraiser ranks the three approaches to value based upon his level of confidence in the credibility of the data used in each approach and, thus, the conclusion as to value drawn from each approach.

3. Quantity: The appraiser analyzes the amount of data collected and used to support each approaches value conclusion.

Based upon this analysis, the appraiser forms an opinion as to a single dollar value (sometimes a range into which the value is expected to fall) for the real estate being appraised.