I have been asked how appraisers determine what a property is "worth" so I have decided to begin a series of posts once a week (or so) dedicated to valuation techniques. Here is part 1, I hope you all enjoy.
PART 1 - The Beginning Of The Appraisal Process
Scope Of Work
The Scope of Work is the first step in any appraisal process. Without a strictly defined Scope of Work an appraisal's conclusions may not be viable. By defining the Scope of Work, an appraiser can properly develop a value for a given property for the intended user, and for the intended use of the appraisal. The whole idea of "Scope of Work" is to provide clear expectations and guidelines for all parties as to what the appraisal report does, and doesn't, cover; and how much work has gone into it.
Appraisers are expected to identify six key parts of the appraisal problem at the beginning of each assignment:
Based on these factors, the appraiser must identify the scope of work needed, including the methodologies to be used, the extent of investigation, and the applicable approaches to value.
Once the details of the Scope Of Work are determined, the appraiser and client (and/or intended users) can decide on the reporting requirements.
Appraisal Reports
Appraisal reports fall into three basic categories: oral reports, form reports and narrative reports, all of which must comply with the USPAP requirements to:
1) clearly and accurately set forth the appraisal in a manner that will not be misleading;
2) contain sufficient information to enable the intended users of the appraisal to understand the report properly; and
3) clearly and accurately disclose any extraordinary assumption, hypothetical condition or limiting condition that directly affects the appraisal and indicate its impact on value.