An appraisal is supposed to be an unbiased estimate of property value, and since an appraisal of real estate is the valuation of the ??ª?rights of ownership??ª? the appraiser begins the process by defining the rights they are considering.
A real estate appraisal, essentially, is a conclusion of worth derived by a research into the law of probability with specific focus on real property rights. It is a systematic process in which the problem is defined; the work necessary to solve the problem is planned; and the necessary data compiled, analyzed and interpreted into a final conclusion. Rooted in education, training, experience, and governed by integrity, an appraiser attempts to forecast a prospective sellers’ and buyers’ reactions into a calculation known as an estimate of market value.
The appraisal of real property is an orderly process involving several processes, the end objective being an estimate of the value as defined. In layman’s terms it could be stated as: what is the “worth”, or “value” of a given piece of real property as of a certain date. Additionally it could also be defined as what will the expected sales price of property be when exposed to the market under the prerequisite of a willing buyer and seller both with no undue stimulus to buy or sell.
An appraisal isn’t a substitute for a professional home inspection. An appraiser formulates an opinion of the property’s value, while the inspector reports the physical condition of a property and its major components.
The appraisal of real property considers socio-economic conditions as they affect the property being considered. This encompasses the city, regional, and neighborhood condition including services and utilities and any other similar conditions that affect the property either advantageously or disadvantageously.
Due to the character and uniqueness of each property, comparisons between seemingly similar real estate often require that adjustment be made before a value conclusion is reached. These adjustments, although subjective, must be based upon reliably conclusive evidence from the market. The final opinion of value, the result of a very thorough analysis of a considerable quantity of physical and economic facts and sometimes-anecdotal data, is then expressed in an appraisal report.
In real property transactions, financial consideration is often influenced by emotions, compassion, sympathy, bias, politics, specific needs, lack of understanding, and other factors that are rightfully not considered by the objective appraiser.
An appraiser may be sympathetic to someone??ª?s circumstance, but as a licensed professional they must not allow their sympathies to influence the final consideration outside justifiable data evidence. Remember, an appraiser cannot be an advocate or else they violate the very reason for the existence of their profession.
I have observed however ??ª?opinions are like backbones and bellybuttons; almost everyone has one and most of us like to express them.??ª? Appraisers get paid to express theirs, at least where an appraisal assignment is concerned.
Opinions are based in part from some reference point, a connection if you will, to some kind of evidentiary fact or strong feeling. They come at a cost, or through some kind of vested interest.
An old saying suggests that, ??ª?a man convinced against his will is of the same impression still.??ª? Maybe this adage concurs with my belief that because most opinions are derived though effort, it is a rare occasion that an appraiser will reconsider their opinion, even in the face of new evidence.
For practical reasons, an appraiser??ª?s opinion of value should never be considered absolute, but should be considered a basis of negotiation between parties involved in the property, whatever their interests.
An estimated value cannot be guaranteed and it cannot be proved, as it is only an opinion; however, the opinion of value must be substantiated and justified. In fact, a value estimate is more appropriately given within the context of a value range. But, due to the dictates of the users of appraisals, a pinpoint estimate is usually required.
Most people simply misunderstand the difference between ??ª?value??ª? and ??ª?worth??ª?. Professionally speaking, may I suggest that no matter how well informed one is, and how much data they collect or how much research they do, no one is capable of conveying what something is truly worth to another individual.
Worth is self-focused, and its reference is inward. Like value, worth has many types, but they are often based on feelings that hold a sense of tangibility. Worth is personal and often private, as such economic decisions based on worth can never be completely justified under economic scrutiny. As an appraiser, I do not have the insight or the complete powers of observation to tell anyone, other than myself, what something is worth.
Value, on the other hand, is subjective and is oriented to external references. Value is an opinion and is based upon something else through a simple comparison process, (If this, then that). External forces often influence value, be they physical, social, economic, environmental, both positive and negative factors, and therefore the type of value being considered must be disclosed in order to avoid confusion. As an appraiser, it is extremely important to not only disclose value influences, but the type of value that is to be analyzed because it allows others the opportunity to consider the final opinion of value from the same point of reference.
The appraisal process is fixed in economic science. Even when the definition of value is clearly defined, slight variations will always exist from one appraiser to another because the process is based upon personal interpretation of the data analysis; and that results in an opinion.
Jean Cocteau said, ??ª?Art is science made clear??ª?. I??ª?d like to also suggest, that appraising is as much an art, as it is a science. Therefore, may I recommend that when you work with an appraiser or a real estate agent for that matter, work with one who not only has the credentials and access to information, but one who can demonstrate a thorough understanding of the assignment, values and the market.
–The views expressed are the fundamental insights of Tom Fairbanks (the author) who spent the majority of his adult career as a Residential Real Estate Appraiser. He is a consultant to ERA Advantage Realty ??ª?? Cache Valley??ª?s Local Real Estate Professionals through his association with GraphiXpress Network in Smithfield and Logan, Utah which owns and operates Cache Valley Print and Honor Copy in Brigham City, Utah. They offer Website Development & Graphics Services along with a full range color and black & white (standard or wide format) copies & print, digital scans & archiving, direct marketing & mailings, administrative and other business services.