Commercial appraisals are integral to assessing the value of a property. The process can be complex, especially for those unfamiliar with it. This article provides a comprehensive overview of the commercial appraisal process, breaking it down into seven easy-to-follow steps.
Key Facts
- Identify the problem or purpose of the appraisal.
- Determine the client, intended use, type of value, and relevant characteristics of the property.
- Gather information on ownership, location, type of use, sales, building measurement, construction type, construction costs, and rental income.
- Determine the scope of work, including the amount and type of information to be researched and the analyses to be applied.
- Collect data on the market area and comparable properties to understand the economic environment and variables that affect property values.
- Analyze the data, taking into account factors such as scarcity, desire, utility, and effective purchasing power of comparable properties.
- Estimate the land value by analyzing sales of similar land parcels.
- Form an opinion of value based on the data, analysis, and the appraiser’s experience and expertise.
- Prepare an appraisal report in the required format defined by professional appraisal standards.
Step 1: Identifying the Problem
The first step in the appraisal process is to identify the problem or purpose of the appraisal. This includes determining the client, intended use, type of value, and relevant characteristics of the property.
Step 2: Determining the Scope of Work
Once the problem has been identified, the appraiser will determine the scope of work. This involves outlining the amount and type of information to be researched and the analyses to be applied in the assignment.
Step 3: Collecting Data
The next step is to collect data on the market area and comparable properties. This information is gathered to understand the economic environment and other variables that cause property values to fluctuate.
Step 4: Analyzing the Data
The data collected is then analyzed to determine the value of the subject property. The appraiser considers factors such as scarcity, desire, utility, and effective purchasing power of comparable properties.
Step 5: Estimating the Land Value
The appraiser will also estimate the land value by analyzing sales of similar land parcels. This information is used to determine the value of the land component of the property.
Step 6: Forming an Opinion of Value
The appraiser will then form an opinion of value based on the data, analysis, and their experience and expertise. This opinion of value is the estimated market value of the property.
Step 7: Preparing an Appraisal Report
Finally, the appraiser will prepare an appraisal report in the required format defined by professional appraisal standards. This report will include the appraiser’s opinion of value and the supporting data and analysis.
Conclusion
The commercial appraisal process is a complex one, but it is essential for determining the value of a property. By following the steps outlined in this article, appraisers can ensure that they are providing accurate and reliable appraisals.
References
- The Appraisal Process
- 7 STEPS OF THE COMMERCIAL APPRAISAL PROCESS
- The Home Appraisal Process: How it Works
FAQs
What is the first step in the appraisal process?
The first step in the appraisal process is to identify the problem or purpose of the appraisal. This includes determining the client, intended use, type of value, and relevant characteristics of the property.
Who is the client in an appraisal?
The client in an appraisal is the person or entity who has requested the appraisal. This could be a lender, a buyer, a seller, or an investor.
What is the intended use of an appraisal?
The intended use of an appraisal is the purpose for which the appraisal is being conducted. This could be to determine the value of a property for a mortgage loan, a sale, or an investment decision.
What is the type of value in an appraisal?
The type of value in an appraisal is the specific definition of value that is being used. This could be market value, fair market value, or investment value.
What are the relevant characteristics of a property in an appraisal?
The relevant characteristics of a property in an appraisal are the physical and economic characteristics that affect its value. This could include the property’s location, size, age, condition, and income-producing potential.
How does the appraiser determine the client, intended use, type of value, and relevant characteristics of the property?
The appraiser will typically gather this information through a combination of interviews with the client, research on the property and the market, and a physical inspection of the property.
What are some examples of the intended use of an appraisal?
Some examples of the intended use of an appraisal include obtaining a mortgage, selling a property, buying a property, appealing property taxes, and estate planning.
What are some examples of the type of value in an appraisal?
Some examples of the type of value in an appraisal include market value, fair market value, investment value, assessed value, and liquidation value.