Frequently Asked Questions
Most inquiries about appraisal services start off with two common questions:
- How much will an appraisal cost?
- How long will it take to complete?
Regrettably, there is no simple answer, other than “it depends on the problem to be solved”. To assist clients and potential users of our services, we have provided this Frequently Asked Questions section. The intent is to give potential clients insight into who appraisers are, what an appraisal is, and what steps are required to complete an appraisal.
Who is an Appraiser?
As the industry defines the term, an appraiser is “one who is expected to perform valuation services competently and in a manner that is independent, impartial and objective”.
Following the savings and loan crisis in the mid 1990’s, Congress passed Federal legislation that mandated State Licensing or Certification of all appraisers. State Certified General is the highest level of certification required to meet this Federal mandate. To assure the public that appraisers act as defined above, appraisers are required to follow a set of standards, referred to as the “Uniform Standards of Professional Appraisal Practice” (USPAP) as defined by the Appraisal Foundation.
These standards outline a set of steps appraisers are required to follow in the normal course of providing their services. All the “what is an appraisal” items are outlined in these standards. Initially, the Appraisal Process that defined what was required of appraisers for each assignment was very complex and inflexible. Eventually, it was realized that all users of appraisal services do not require the same thing, so some allowance is now made for the needs of the appraisal client.
Each assignment is now governed by an agreement between the client and appraiser, referred to as the “Scope of Work”. Within the framework of the minimum requirements of USPAP compliance, appraisers can work with clients to provide the best possible solution to their appraisal needs. This can vary from extremely detailed, in-depth analysis to a simple range of values. When considering a fee quote and time considerations to complete and assignment, appraisers develop an understanding of the needs of the client to enable them to structure a Scope of Work that will meet the needs and objectives of the client.
It should also be pointed out that as the complexity of the problem increases, so does the level of expertise needed to solve the problem. State Certification is viewed as a minimum level of competency. Beyond that, appraisers seek education and training from various appraisal organizations. Accreditation or Designation from some of these often requires nearly twice the level of education and training as that required of State Certification. If the problem is complex, and the outcome of the value opinion critical, by all means, seek the services of a designated appraiser. For farms and rural properties, the ONLY designation you should consider is the Accredited Rural Appraiser.
What is an Appraisal?
In its simplest form, an appraisal is defined as an opinion of value. But pertaining to what? With respect to a real estate appraisal, it is an opinion of value of specifically defined rights to specifically described real estate, as of a specific date. Each highlighted term has specific meaning and in order for any appraiser to provide a “value”, each item has to be defined and addressed.
Appraisers are required to state in the report the definition of what “value” it is they are reporting. In the vast majority of cases, the “value” indication is Market Value, which is a very narrowly defined industry term.
Real Estate appraisers do not value real estate. They value rights to the described real estate. The rights appraised are often likened to a bundle of sticks, with each stick representing a “right”. Examples might be surface rights, mineral rights, water rights, development rights, the right to lease the property to others (with multiple leases possible). If the property is encumbered by an easement, such as conservation easement, potential uses for a property may be severely limited, which can have a drastic affect on value. For this reason, each appraisal is a value opinion of the rights appraised, and these rights must be stated in the report. The full bundle or rights is considered to be the Fee Simple Estate.
Is this really important? Consider a recent assignment to help settle an estate: The decedent owned an undivided half interest in a farm property in which the mineral rights had been leased and the owner was collecting a share of royalty payments from an operating quarry on the property. In addition, all cropland outside the mine area had been enrolled in the USDA Conservation Reserve Program. If compared to an identical property in which the full bundle rights were held by one person, (the property free and clear of all leases and restrictions), the difference in market value could be drastically different.
When property rights are dispersed, it has an affect on the steps needed to solve the problem, so the property “rights appraised” must be determined in order to complete an appraisal or to offer an estimate on what it will cost to have a “property” appraised. The more the rights are dispersed, the more difficult the assignment (in terms of time required to solve the problem).
Each “property” to be valued must be described such that the property boundaries and unique spatial position it occupies can be identified.
An example might be the “Northwest Quarter (NW ¼)” of a government survey section. Typically, a quarter section is 160 acres in size. The value opinion offered is unique to that property and only to that property. The property described might have frontage to roads, access to utilities, buildings, unique land features, views or any number of other features unique only to it. Even a subtle difference can have a profound affect on the outcome. In the above case, suppose that the legal referenced the “NW ¼, except 10 acres in the northeast corner”. What if a building with a value of $500,000 was located on those 10 acres? Removal of the 10 acres from the property described removes the contributory value of the building. So something as subtle as a simple line in a legal description can have a profound affect on the opinion of value!
Date of Value:
Appraisal opinions are offered as of a specified date. Market conditions change and values do not remain the same. Often times a value opinion may be required as of the date of some legal event, or may simply be the day the appraiser inspected the property. But in either case, the opinion of value applies only to that date in time.
The Appraisal Process
Appraisers don’t rely on crystal balls or Ouija® Boards, nor are they psychics. They are not born with an inherent knowledge of values. What they do have is an intuitive set of procedures called the Appraisal Process. This is a methodical set of steps, which if followed, will ultimately lead them to an accurate and supportable opinion of value.
Once the property and associated rights are identified, a date of value and scope of work determined, the appraisal process can begin. Physical characteristics of the property that correlate to value are identified and listed. Once an adequate description of the property is obtained, emphasis then shifts to market research. The goal is to find something as near like the property being appraised as possible. Same property rights, same time frame, same physical characteristics, same everything. Simply put, this is a shoe-leather investigative project looking for something exactly like the property being appraised that has sold.
Recognizing that no two properties are exactly alike for all features, differences between the properties are observed and the affect on value of these differences measured. Adjustments to the sale prices are made. This process and data analysis is what forms the basis of the opinion of value.
As properties become more unique, the prospect of finding something similar diminish to the point where it can be concluded that no truly similar property exists in the local area of the subject. In this case, the area searched has to be expanded (in extreme cases to other states or regions in the United States), or other techniques considered. Again, time and expertise come into play. (Top)
The information in our three FAQ pages is intended to give potential users of appraisal services insight into the Appraisal Process and Appraisal Industry. While not intended to be complicated, we acknowledge it may seem so. The good news is that as long as we understand it, clients don’t have to!
In response to the two most common questions (how much and how soon), we have developed an appraisal request form that clients can submit. We ask for basic information to enable us to understand the nature of the property and the appraisal problem to be solved. From that, we develop a Scope of Work for the assignment that is tailored to meet the client’s needs. Once a Scope of Work is agreed upon, we can offer quotes for fees and estimated date of completion. It is important that we get accurate information. As can be seen above, any detail that is left out or that changes in midstream changes the scope of work and can have an affect on time and cost. Fee quotes are based on time (hourly or per diem rates) and expenses. Time to complete the assignment is based on how long we think it will take us to complete the required research, complicated by the backlog of existing work.
Providing us with information does not obligate the client to any services. It is only used to form the basis of quotes for services and is kept confidential. In the event the client does elect to utilize our services, we ask for written authorization that outlines the agreed upon Scope of Work and fee quotes.