Question 1

What is an appraisal?

Accepted Answer

Per USPAP, an appraisal is "the act or process of developing an opinion of value; an opinion of value."  The appraisal result may be communicated by a written report and/or orally. Since an appraisal is an opinion, the result is not a hard fact and two appraisers may come to two different value conclusions for the same property.  In a perfect world, an appraisal might be an exact science; however, in the practical real world, an appraisal involves both science and art.  The credibility of each appraisal is dependent on various factors including the data available to the appraiser, the level of due diligence performed by the appraiser, and the experience level of the appraiser.

Question 2

Who is an appraiser?

Accepted Answer

An appraiser is a professional that provides an opinion of value.  Per USPAP, an appraiser is "one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective." They play a crucial role in real estate transactions, helping lenders, buyers, and sellers determine a fair and accurate value for a property.
 
There are different categories of licensing in appraisal including trainee, licensed residential appraiser, certified residential appraiser, and certified general appraiser. Professionals holding a certified general appraisal license may appraise all types of property including residential and commercial, so long as they have the competency to do so.  Appraisals for all federally related transactions are required to be completed by state-licensed appraisers.  Although a licensed appraiser is not required for purposes of private use, it is generally recommended because licensed appraisers meet certain minimum education, experience, and ethical standards.  All licensed appraisers are required to abide by the Uniform Standards of Professional Practice (USPAP).

Question 3

What is the MAI designation?

Accepted Answer

The MAI designation is conferred by the Appraisal Institute to individuals who have demonstrated a high level of competency in commercial property valuation that is beyond state licensing requirements.  MAI-designated appraisers must meet rigorous educational, testing and knowlege demonstration requirements.  They are also required to adhere to the Appraisal Institute Code of Professional Ethics and Standards of Professional Practice.  Appraisers with MAI designation are highly trusted and regarded by financial institutions, courts of law, governmental agencies, attorneys, and investors as leaders in their field.

Question 4

How is the property value determined?

Accepted Answer

There are three commonly used approaches to appraising real estate. Depending on the property and intended use of the appraisal, one or all three approaches may be applicable.

The Sales Comparison Approach involves direct comparisons of the property being appraised to similar properties that have sold in the same or a similar market in order to derive an estimate of value for the subject property. This approach is based on the principle of substitution and that an informed purchaser would not pay more for a property than the cost of acquiring another property with similar utility. This approach is applicable when an active market provides a sufficient quantity of comparable sales that can be verified from reliable sources. This approach is applicable to all properties, especially owner-user properties and residences.

The Cost Approach adds land acquisition costs and building costs (direct and indirect), to arrive at a total replacement cost for the subject property. From this figure, the applicable depreciation is subtracted to determine the value. The Cost Approach is a good indicator of value when the property is new and accurate data exists on building costs. There must also be recent land sales in order to estimate the site value.  This approach is most applicable to newly constructed or proposed projects.  The Cost Approach is also applicable for unique properties in which there are few or no comparable sales and rentals available in the market.

The Income Capitalization Approach is based on the principle of anticipation and is a procedure in appraisal analysis that converts anticipated financial benefits to be derived from the ownership of property into a present dollar value estimate. Leases and historical operating statements are analyzed by the appraiser so that future income projections can be made.  An appropriate capitalization rate is then applied to the projected net operating income (NOI) to determine the value.  If a property is projected to experience an irregular income stream, a yield capitalization method or discounted cash flow (DCF) analysis may be required.  The Income Capitalization Approach is widely applied in appraising income-producing properties typically purchased for investment purposes.

Question 5

How much does a property appraisal cost?

Accepted Answer

Fees vary based on the property's type, size, location, and complexity of the assignment. Other factors that may impact fees include the intended use, report type, turnaround time, and multi-property discount. The first discussion on every assignment is to assess the required scope of work and the complexity of the project, which would enable us to provide a reasonable fee quote and turnaround time.  Feel free to contact us to determine what services best suit your needs.

Question 6

Should a borrower order an appraisal?

Accepted Answer

Who may order the appraisal is dependent on the intended use.  A borrower may order an appraisal if it is for his/her own internal use to determine potential collateral for a loan.  In some instances, a borrower may be permitted to order the appraisal if the loan is through a private lender.  The borrower should consult with the lender prior to ordering the appraisal.  
 
For most banks and lending institutions that involve federally related transactions, the borrower should not order the appraisal.  The lender will generally order the appraisal from their approved appraiser panel.

Question 7

May I obtain a copy of the appraisal report?

Accepted Answer

We may only provide a copy of the appraisal report to the client who engaged us to perform the appraisal.  In addition, we may only discuss the appraisal and assignment results with the client.  Many borrowers misunderstand that since they paid for the appraisal, they are the client and are entitled to a copy of the appraisal report.  We may only discuss and provide a copy of the appraisal to a third party if such a request is made by the client.

Question 8

Can you readdress or transfer the appraisal report to another party?

Accepted Answer

No.  Readdressing or transferring the appraisal to another client is not permissible under USPAP, even with a release or permission letter from the original client.  However, a new assignment may be engaged by the new client, thus creating a new appraiser-client relationship.  Although not a USPAP requirement, it is our company's policy that we obtain permission from the original client prior to us accepting re-appraise works if the property was recently appraised within the last 6 months.

Question 9

How long does an appraisal process typically take?

Accepted Answer

The duration varies based on the property's complexity, location, scheduling availability, and requested document availability.   For most commercial appraisal assignments, the typical turnaround time is 10 to 15 business days.  Rush services of 3-5 business days may be available upon request.

Question 10

Does an appraisal or appraisal report have an expiration date?

Accepted Answer

An appraisal report has two dates: 1) the effective date of value and 2) the date of the report in which it was submitted to the client.  There is no stated expiration date.  It is the intended user that determines the length of time that an appraisal or appraisal report is still valid. 
 
There are instances in which a client requests a "recertification of value" or an "update appraisal."  The two are different.  The purpose of a recertification of value is to confirm whether the conditions specified in the original appraisal have been met.  For instance, a recertification may be requested for a proposed project that has been completed.  The recertification is not a new appraisal.   In contrast, a request for an updated appraisal is actually a request for a new appraisal since the date of value changes and the valuation analysis/conclusions may differ from the prior appraisal.

MARKET VALUE ADVISORS, INC.

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