In every appraisal assignment, the appraiser should see to it that the client understand not only the final value, but the appraisal report in its entirety.
Appraisal report is the product of the whole appraisal process. It is an important document for decision maker in deciding whether or not to accept any real estate transaction.It outlines the strength and weaknesses of a property. Thus, the conclusion in the report can make or break any real estate negotiations.
Beside market value, what are the other factors that a property owner, real estate practitioner or investor should look to in an appraisal report?
Here are some of the major factors to consider as you read over the appraisal report.
Proper identification of the property.The most important in appraisal is the proper identification of the property. Definitely, wrong property is wrong appraisal. The appraiser should indicate the correct characteristics of the property like shape, size, depth, age, topography and boundaries. Documents such as the property title and tax declaration should match with the public records in the city assessor, engineering, city planning and Bureau of Lands.
Market trends. If the market has been going up, but the report says the market is going down, that could not support the final value. The report should show if what is unfolding in the market, otherwise that could lead to erroneous adjustments in the report.
Neighborhood Boundaries. The neighborhood boundaries listed in the appraisal report should show the correct similar neighborhood on which the subject property and the comparable (comps) sales are located. It can make a big difference if the wrong comps are used from inferior or superior neighborhoods.
Selection of comparables. The comparable used are the good substitution of properties a buyer might consider purchasing instead of the subject property. It should almost identical with the property appraised. Otherwise, it is a wrong comps and questionable.
Adjustments.Some reports make an adjustment by just getting the average of the total price of comps in the market. It does not reflect the real estate market and are not reasonable.
Measurements. In measuring the improvements, appraisal report should present a relatively similar to official records or to what a buyer know of the property. It is important to double-check, in case of error.
Improvements. The report won’t show an adjustment for every single update, but the final value should consider improvements. Keep in mind of course that not all improvements contribute to value. For example, a swimming pool in the backyard probably won’t be a huge plus in a beach area.
Qualification of the appraiser. Appraisal report mirrors the experience and qualification of the appraiser. Property owner, investors and real estate practitioners should look for appraisers that are not only licensed but possess a certain level of experience. The report should indicate the client list and types of property appraised by the appraiser. This will show if the appraiser is qualified to do the assignment.
Now that you know the important elements of an appraisal report, its time to obtain a copy from your appraiser or bank loan officer.
Remember that your property is one of your most important lifetime investments. The money spent on a quality appraisal is well spent.