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How an Appraisal Report is Compiled

By Derren Peters

Each appraisal report contains a variety of figures, property details and sales comparisons. This includes current specs of the subject property, and a side-by-side comparison of three similar properties. The report will provide an estimate of the average sales time for the property, the type of area the home is in (stand alone acreage, development, etc.). The appraiser may point out details about the subject property that are detrimental to its value, i.e. obstructed access to the home, and highlight any apparent characteristic flaws, such as a crumbling foundation. The appraiser also evaluates the overall market in the area, detailing the volume of transactions and average DOM (days on market) and home values for the neighborhood.

There are two appraisal methods used for residential properties. The first is known as the cost approach. Formerly referred to as the summation approach, this is applied to newly built properties, where the costs to build are known. The figure given is an estimate of how much it would cost to replace the structure if it were destroyed. It's calculated as a hybrid of the cost and sales comparison approaches i.e., the replacement cost of a home is determined by adding the labor, material, and other costs, with consideration for land values and depreciation.

The second approach, a sales comparison, determines the home's market value by comparing it to similar properties recently sold in the area. As no two properties are ever alike, the appraiser must make paperwork adjustments to the comps to make their features more in sync with the subject property. The resulting figure shows what each comp would have sold for if it had the same specs as the subject.

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