Historical Properties and Their Unique Appraisal Approaches

Introduction

Appraising historical properties involves a complex interplay of factors, making it a specialized field within real estate valuation. This article provides an insight into the appraisal process of historical properties, emphasizing the role of market data, potential buyers, specialized databases, appraisal methods, and the significant impact of preservation restrictions.

Leveraging Market Data

The appraisal process begins with a thorough analysis of market data, focusing on sales of properties that share historical or antique characteristics. This comparative market analysis extends beyond standard parameters like size and location to include age, architectural style, and historical significance. The scarcity of historical properties often requires appraisers to expand their search to find comparable sales, both geographically and over longer time frames.

Targeting the Most Likely Buyer

The niche market for historical properties typically comprises buyers who value historical preservation and authenticity. Understanding the unique appeal of these properties to such buyers is crucial in accurately determining their market value.

Specialized Databases and Appraisal Methods

The appraisal of historical properties relies heavily on specialized databases. These include:

  1. The National Register of Historic Places: This is the United States’ official list of districts, sites, buildings, structures, and objects deemed worthy of preservation for their historical significance. The National Register is a valuable resource for appraisers, providing detailed information about registered properties, their historical context, and preservation status.
  2. Local Historical Commissions and State Databases: Many localities have their own historical commissions that maintain records of locally significant historical properties. These commissions often have databases that include details on property histories, architectural styles, and any local preservation restrictions. Appraisers also utilize Local Town and State Databases of historical properties. These databases offer comprehensive information on historical properties at the state level, including their historical significance, and any state-level preservation restrictions.

These databases are instrumental in providing appraisers with historical sales data, preservation records, and other relevant information.

Sales of Historical Properties and Value Development

In developing a property’s value, appraisers consider various factors, such as condition, historical significance, renovations, and the extent of preservation of original characteristics. Each property’s unique attributes significantly influence its appraisal.

The Impact of Preservation Restrictions

The distinction between a historic property with preservation restrictions and an old house without them is crucial in the appraisal process. Preservation restrictions, often governed by the National Register or local historical commissions, can add value by ensuring the property’s integrity. However, these restrictions may also limit modifications, potentially affecting the property’s market appeal.

An old house without such restrictions offers more renovation flexibility, which can be appealing to a broader market. However, it may lack the historical significance that often adds value to preserved properties. Appraisal methods for these properties might also include the cost approach (reproduction cost using historical techniques).

The Cost Approach

In many unique cases, especially where there is a lack of comparable sales data, appraisers may resort to the cost approach. This method involves estimating the cost to replicate or replace the property’s historical features using current prices for labor and materials. The cost approach in historical property appraisal is particularly nuanced, often focusing on reproduction costs rather than just renovation costs.

Renovation Cost vs. Reproduction Cost

  • Renovation Cost: This refers to the cost of restoring or repairing existing elements of a property. Renovation costs are typically lower as they involve working with existing structures and materials.
  • Reproduction Cost: For historical properties, especially those with preservation restrictions, reproduction cost is more relevant. Reproduction cost involves estimating the expense to recreate the property in its exact historical form using materials and techniques that match the original as closely as possible. This process can be significantly more costly than renovation due to the specialized labor and materials required to maintain historical accuracy.

Reproduction costs are essential in cases where preservation restrictions mandate that any alterations or repairs strictly adhere to the property’s original style and materials. This approach ensures that the property retains its historical integrity, which is often a key component of its value.

Conclusion

Appraising historical properties requires a blend of historical knowledge, real estate expertise, and an understanding of preservation impact. The process involves not just valuing a piece of real estate but also appreciating the narrative and significance of historical structures. By tapping into resources like the National Register and local historical commissions, appraisers can navigate the complex landscape of historical property appraisal with greater precision and insight. For more information on how Boston Appraisal Services can help, please contact us at orders@bostonappraisal.com or call us at 617-440-7700.

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Challenging Appraisals: Strategies for Lawyers and Their Clients

Appraisals are often a crucial part of real estate transactions, litigations, taxes, and estate planning. However, in the course of obtaining an appraisal or while reviewing an appraisal, it may be necessary to verify the reliability, credibility, and accuracy of an appraisal report. Should there be questions, it may even be necessary to challenge an appraisal. Sometimes, appraisals may be based on faulty assumptions, incomplete data, or biased opinions. In such cases, appraisals may not reflect the true market value of the property or the fair compensation for the damages.

If you or your client are facing a situation where an appraisal is challenged or disputed, you need to have a solid strategy to defend or contest the appraisal. You also need to have a trusted and experienced appraisal partner who can provide you with a high-quality appraisal that meets the standards of the industry and the court.

How to Defend an Appraisal

If you are relying on an appraisal to support your case or claim, you need to be prepared to defend it against any potential challenges from the opposing party. Here are some tips on how to defend an appraisal:

  • Review the appraisal report carefully: Make sure that the appraisal report is clear, concise, and consistent. Check for any errors, omissions, or inconsistencies in the data, analysis, or conclusions. If you find any issues, contact the appraiser and ask for clarification or a correction.
  • Verify the qualifications and credentials of the appraiser: Make sure that the appraiser is licensed, certified, and qualified to perform the appraisal. Check for any disciplinary actions or complaints against the appraiser. If possible, obtain references or testimonials from previous clients or peers of the appraiser.
  • Evaluate the methodology and approach of the appraiser: Make sure that the appraiser used appropriate and accepted methods and techniques to value the property or estimate damages. Check if the appraiser considered all relevant factors and market conditions that affect the value of property or the amount of damages. Check if the appraiser used comparable properties and transactions that are similar to the subject property in terms of location, size, condition, and quality, amongst other characteristics.
  • Support the appraisal with additional evidence: If possible, provide additional evidence that corroborates and confirms the appraisal results. This may include market data, expert opinions, photographs, and documents, along with other information that supports the value opinion.

How to Challenge an Appraisal

If you are disputing an appraisal, you need to have a strong argument to challenge it. Here are some tips on how to challenge an appraisal:

  • Identify the weaknesses and flaws of the appraisal report: Look for any errors, omissions, or inconsistencies in the data, analysis, or conclusions of the appraisal report. Point out any discrepancies or contradictions between the appraisal report and other evidence or information. Highlight any gaps or missing information in the appraisal report that may affect its validity.
  • Question the qualifications and credentials of the appraiser: Look for any evidence that suggests that the appraiser is not licensed, certified, or qualified to perform the appraisal. Look for any disciplinary actions or complaints against the appraiser that may affect his or her reputation or credibility. Look for any conflicts of interest or biases that may influence the appraiser’s opinion or judgment.
  • Criticize the methodology and approach of the appraiser: Look for any evidence that suggests that the appraiser used inappropriate or outdated methods and techniques to value property and estimate damages. Look for any evidence that suggests that the appraiser did not consider all relevant factors, market conditions, and damages that affect the value of the property. Look for any evidence that suggests that the appraiser used incomparable property transactions that are dissimilar to the subject property situation in terms of location, size, condition, quality, or other characteristics.
  • Present an alternative appraisal with a different result: If possible, obtain a second opinion from another qualified and experienced appraiser who can provide you with a new appraisal on the subject property. Compare and contrast the two appraisals and explain why the second appraisal is more accurate, reliable, and credible than the other party’s appraisal.

What are the challenges of challenging appraisals?

Challenging appraisals can be difficult for several reasons. First, appraisers are humans and may make mistakes or have biases that affect their judgment. Second, appraisals are subjective and may vary depending on the methodology, data, and assumptions used by the appraiser. Third, appraisals are influenced by market conditions and the availability of comparable sales at the time of the appraisal. Fourth, appraisals are often accepted as authoritative by lenders, courts, and other parties, and challenging them may require substantial evidence and expertise.

Some of the common issues that may arise in challenging appraisals are:

  • The appraiser used inappropriate or outdated comps that do not reflect the current market value or the unique features of the property.
  • The appraiser made adjustments to the comps that were not supported by market data or industry standards.
  • The appraiser overlooked or undervalued improvements, amenities, or other factors that enhance the value of the property.
  • The appraiser used an incorrect or inconsistent approach to value the property, such as cost, income, or sales comparison.
  • The appraiser did not comply with the ethical and professional standards of the appraisal industry or the specific requirements of the intended use of the appraisal.

How can Boston Appraisal Services help you overcome these challenges?

Boston Appraisal Services is a leading provider of appraisal services in Massachusetts, Rhode Island, and New Hampshire. We have a team of experienced and certified appraisers who specialize in appraising various types of properties for different valuation purposes. We offer high-quality appraisal reports that are accurate, reliable, and compliant with the latest standards and regulations.

If you need to challenge an appraisal that you believe is inaccurate or unfair, we can help you in several ways:

  • We can review the appraisal report and identify any errors, omissions, or inconsistencies that may affect the credibility or validity of the appraisal.
  • We can perform a rebuttal appraisal that provides an alternative opinion of value based on our own analysis and data.
  • We can provide expert testimony or consultation to support your position and explain our findings and methodology in a clear and convincing manner.
  • We can assist you in negotiating with the other party or resolving the dispute through mediation or arbitration.

Boston Appraisal Services has a proven track record. We have helped many homeowners, buyers, sellers, lenders, attorneys, and other professionals by providing our expert opinions and appraisal reports. Whether you need to challenge an appraisal for a mortgage loan, a property tax appeal, a divorce settlement, a litigation case, or any other reason, we can provide you with the best service.

Contact us today to find out how we can help you with your challenging appraisal needs. You can call us at (617) 440-7700, order online at our website or send us an email at orders@bostonappraisal.com. We look forward to working with you!

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When to Apply Extraordinary and Hypothetical Assumptions

When to Apply Extraordinary and Hypothetical Assumptions

The process of determining a property’s market value is called a real estate appraisal. The person who appraises the property, the appraiser, physically inspects the property to measure it, take pictures of it, and make note of the condition and the quality of the construction.

The appraiser also needs to be aware of the zoning regulations, city ordinances, and other restrictions that can affect the value of the property. He may also need to know about any recent changes in the neighborhood, such as new constructions, new roads, and new amenities, as well as any special features that can affect the property value. Finally, the appraiser needs to consider the economic conditions, such as supply and demand, population density, demographics, economic trends, and the job market.

After the appraiser completes all the necessary research, he writes a report to present his opinion of the market value of the property. The report must be detailed and include all the information needed to support his opinion. The appraiser must also provide an explanation of how he arrived at the value, as well as any assumptions and adjustments made. The report must be signed and dated by the appraiser in order to be used by the client.

This is of course how a typical appraisal report is generated. Oftentimes, appraisers face situations where a physical inspection alone may not provide all the relevant data required. In the case of a new construction property, the appraiser may only be able to inspect a vacant plot of land; the proposed house is still not built. Or, the appraiser may not have been granted access to the interior of a house such as in the case of exterior appraisals. In cases like this, the appraiser has to make assumptions about information that cannot be physically verified or collected firsthand.

Whenever an appraiser determines that making an assumption is necessary, he typically makes one of two types of assumptions. The types are either Extraordinary Assumptions or Hypothetical Assumptions. This article will explain what these two are and the situations in which an appraiser might employ them.

Extraordinary Assumption:

USPAP defines an Extraordinary Assumption as a presumption that, if proven to be wrong, could change the appraiser’s judgments or findings. It is directly related to a specific assignment as of the effective date of the assignment results. What does this mean?

It means that the appraiser is dealing with uncertain information and is assuming something to be true. The information that the appraiser is uncertain about could be about the physical, legal, or economic characteristics of the subject property. Or, more generally, it could be about things external to the property, such as market conditions or trends; or about the integrity of the data used in an analysis.

A simple, common example would be when an appraiser is not able to complete a full physical inspection. An appraiser may discover that one unit in a multifamily property is locked and inaccessible. While they inspected the other units and have firsthand information about them, such as the number of bedrooms, bathrooms, the condition and quality of the interior, etc.; the appraiser doesn’t know what this locked unit contains or what condition it might be in.

In situations like this, the appraiser makes an Extraordinary Assumption. The appraiser assumes this locked unit matches the public record information, that it has the reported number of rooms, and is in line with the reported quality and condition. He further assumes the locked unit is in conformity with the rest of the subject and matches with what the appraiser was able to inspect. This assumption is specific and tied directly to the subject property and is made as of the effective date of the appraisal.

Hypothetical Assumption:

USPAP defines a Hypothetical Assumption as a condition, that is directly related to a specific assignment, and which is contrary to what is known by the appraiser to exist on the effective date of the assignment results but has been used for the purpose of analysis. What does this mean?

It means that the appraiser is making an assumption that is contrary to known facts; in other words – the appraiser is making an assumption about the subject that is not actually true. The assumption might be about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis.

A simple, common example would be when an appraiser completes a report on a proposed, new construction property. The appraiser does his work based on architectural plans and construction specifications, all providing details about a subject property that is yet to be built.

At the time of the appraisal report and on the effective date, the subject property might just be vacant land. However, for the purpose of analysis and in order to actually produce the report; the appraiser assumes that the property is already complete. He or She further assumes that this hypothetical property conforms with the plans and the specifications provided.

Required Disclosures:

Whenever an appraiser makes a Hypothetical Assumption or an Extraordinary Assumption, there are requirements that these assumptions be made with proper disclosures.

Extraordinary Assumptions must be clearly disclosed in the appraisal report, and the report must notify intended users that the extraordinary assumptions might have affected the assignment results. The appraiser need not report on the impact of this assignment condition—only that it might have affected the assignment results. Though an extraordinary assumption might be employed in an assignment, there is no USPAP requirement that it be labeled as such.

Hypothetical Assumptions must be clearly disclosed in the appraisal report, and the report must notify intended users that the hypothetical conditions might have affected the assignment results. Again, the appraiser need not report on the impact of this assignment condition—only that it might have affected the assignment results. Additionally, a Hypothetical Condition might be encountered in an assignment, there is no USPAP requirement that it be labeled as such.

An appraisal is not inherently flawed because it is premised on a hypothetical assumption. An appraisal is not erroneous because it is premised on an extraordinary assumption. In some cases, it may be impossible to provide a value that is not premised on an assumption.

Assumptions and hypothetical conditions are established at the beginning of the valuation process and the valuation proceeds from that basis. The use of assumptions, whether extraordinary or hypothetical, may affect the Scope of Work for an appraisal. The Scope of Work in turn affects how the valuation or review process is carried out, and that in turn can affect the assignment results (e.g., the value opinion in an appraisal). In all cases, the use of an assumption or a hypothetical condition must result in a credible opinion or conclusion, given the intended use.

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Gross Living Area Discrepancies with Public Data May Differ and How They Occur

Gross Living Area Discrepancies with Public Data May Differ and How They Occur

Appraisers are often tasked with providing valuations for properties that can be very different from one another. From one house to the next, things can and often do change. Everything from the number of bedrooms to the quality of the construction. However, in order to provide credible valuations, appraisers often have to find an objective basis for comparison. More often than not, square footage and size become the units of comparison.

However, simple square footage counts are not used. Appraisers use a unit of comparison known as the GLA, which stands for Gross Living Area. The Gross Living Area is used as a standard measure for the size of a dwelling. It is used in real estate appraisals to determine the value of a property. To calculate GLA, the square footage of all floors of the dwelling is measured and included, excluding basements and unfinished attics. The GLA measurement is used to compare properties and to determine the value of a property based on its size. It is important to accurately measure the GLA of a property, as it can significantly affect the value of the property.

The gross living area is typically defined as the finished and heated space in a residential building that is easily accessible and meets certain requirements for heating and ceiling height. These requirements vary depending on local building codes and regulations but typically include a traditional heating system and a minimum ceiling height of 7 feet. This is because construction rules frequently require at least a 7-foot ceiling height for spaces to be considered usable and livable. This is due to the fact that low ceilings can make a place feel tight and uncomfortable, as well as pose a safety hazard if they are too low for people to stand upright in.

Determining the gross living area (GLA) of a property can be a crucial factor in its evaluation and, ultimately, its value. There are several sources that can be used to determine the GLA of a property, such as public records, assessors, and plans or specifications. However, these sources may not always provide an accurate representation of the property’s true GLA for a variety of reasons. One reason is that the information contained in these sources may be out of date or inaccurate. For example, public records may not reflect any renovations or additions that have been made to the property since the records were created. Similarly, assessors may not have access to the most up-to-date information about the property.

Additionally, other sources, such as plans, or specifications, may not always be complete or detailed enough to accurately reflect the property’s true GLA. Public records often do not include information about finished basements or bonus rooms that are part of the GLA, and plans or specifications may not include all of the details needed to accurately measure the spaces. Overall, it is important to verify the accuracy of any information about a property’s GLA, and to use multiple sources of information, if possible, to get a complete and accurate picture of the property’s true GLA. This is where a professional appraisal inspector comes in.

In most cases, the process of obtaining the GLA requires appraisers to inspect and measure a subject property. This is done through a thorough and meticulous process, where the inspector will use specialized tools and techniques to measure every room, hallway, and other living space within the property. These inspections and measurements must conform to the standards and guidelines of the American National Standards Institute, also known as ANSI. ANSI guidelines, specifically, the Square Footage-Method (ANSI Z765-2021), provide appraisers with a standard for measuring, calculating, and reporting above and below-grade square footage(s) to determine the gross living area (GLA) and non-GLA areas of subject properties. This creates alignment across market participants, allows transparent and repeatable results for the user of the appraisal report, and provides a professional and defensible method for the appraiser. ANSI guidelines also provide standards for the design and construction of supplementary units installed in a single-family home, such as an in-law/accessory unit or finished attic spaces. A small, independent living area constructed on the same property as a single-family home is referred to as an accessory unit. It is also known as a secondary unit or in-law unit. Usually smaller than the main house, accessory units serve a variety of functions, such as giving family members or tenants extra living space.

An in-law unit is a separate living space that is typically located on the same property as a single-family home. In-law units can be used for a variety of purposes, such as providing a place for an aging parent or adult child to live, or as a rental property. In many cases, an in-law unit is not considered part of the gross living area (GLA) of a home because it is a separate, self-contained living space. The GLA of a home generally refers to the total square footage of all of the habitable and livable space within a home, including the main living areas, bedrooms, and bathrooms. Because an in-law unit is a separate space with its own kitchen, bathroom, and living areas, it is often considered a separate entity from the main home and is not included in the GLA calculation. The appraiser would take these factors into consideration when determining the value of the in-law unit, and this value would be reflected in the overall appraisal of the property.

These considerations and issues are important and necessary for the appraiser to verify. As stated above, it is during the physical inspection of the property that the appraiser collects the information needed to determine GLA. But a physical inspection also allows the appraiser to gather other detailed information about the property, such as its condition. This is important because the value of a property can be significantly affected by its condition, age, and features. By inspecting the property in person, the appraiser can see firsthand any issues or problems that may affect the value of the property.

Second, a physical inspection allows the appraiser to verify the accuracy of the information that has been provided about the property. For example, if the property is described as having a certain number of bedrooms, bathrooms, and square footage, the appraiser can verify this information by measuring the rooms and taking other physical measurements of the property. This helps to ensure that the appraisal is based on accurate and reliable information.

Finally, a physical inspection allows the appraiser to get a better understanding of the property’s location and surroundings. The appraiser can assess the quality of the neighborhood, the proximity of amenities and public transportation, and other factors that may affect the value of the property.

Conversely, it should be noted that while all appraisers follow the same guidelines and standards when inspecting a property (such as ANSI) and determining GLA square footage, the same is not true for assessors or real estate agents. Information about in-law units is typically not properly disclosed in public records and leads to discrepancies. Real estate agents may not be following the same guidelines when measuring finished areas in basements or attics. Appraisers and appraisals, however, have physical inspections and ANSI standards that are used to verify what is being reported.

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3 Reasons Why an Appraisal Comes in Low

3 Reasons Why an Appraisal Comes in Low

Have you jumped on the refinance bandwagon? If not, you may want to consider it. As of the end of October 2020, interest rates on a 30-year refinance mortgage were averaging around 3.2%. These are the lowest rates in the last 40 years! If you decide to take advantage of these all-time low rates, your lender will most likely order an appraisal. What happens if the new appraisal is less than original one? Before you assume the appraiser made a mistake, let’s look at three reasons why a new appraisal could come in low.

The Case File

Front of a navy painted house with lights on.

Three years ago, James Brown purchased a nice three-bedroom home in a quiet town with good schools. The home had been recently renovated and was in great condition. He paid $475,000. The appraisal at that time matched the purchase price.

James wants to do a cash-out refinance and get $15,000 to pay off some other debts. To make that happen, the lender says the appraisal needs to be at least $494,000. James expects it to come in close to $505,000. When the appraisal comes back, however, it was for only $489,000.

James is devastated. The lender suggests that he takes out only $10,000 instead of the $15,000. The appraiser looks like the bad guy. But what could be the cause of the lower than anticipated value?

Reason #1: The Range of Value

The primary reason appraisals differ is because, in reality, real estate appraisals are designed to provide a range of value rather than one set price. A real estate appraisal measures the actions of typical buyers and sellers in the marketplace and rarely do two buyers offer the same exact amount.

Let’s say that Mr. Brown decides to list his home. He lists it for $530,000 and expects to get an offer at $505,000. Within one week, he receives 100 purchase offers. Of those 100 offers, we could expect that approximately 30% would be ridiculously low and 10% would be really high with a slew of ridiculous contingencies. The remaining 60% would be considered reasonable offers. There would be some low cash offers and some high offers with contingencies such as seller paid closing costs or closing delays (i.e. buyer needing to sell their house first); but generally speaking, all the offers should be within 10% of each other. All the reasonable purchase offers created a range of value.

Using our example of Mr. Brown’s house, 60% of the offers would be between $480,000 and $530,000. While every seller would love to get the highest price, nearly all of the high-priced offers will have some sort of contingency that would make the offer less appealing. It is very possible that Mr. Brown may accept an offer of say, $490,000 if the buyer is paying cash and can close within two weeks. That accepted purchase price becomes the “market value” of the property.

An appraisal measures that value range within the report. Hence, Mr. Brown’s most recent appraisal of $489,000 is within that appraisal range of $480,000 to $530,000. It is possible that the appraiser may be willing to adjust the value up to the desired $494,000, since it is also within the range.

Now, here is a word of caution: federal lending requirements and appraisal standards do not allow lenders (or property owners) to “pressure” the appraiser into “hitting” a target number. The lender hired the appraiser as an independent third-party to provide a non-bias estimate of value. The appraiser will decide if the market data can support a change of value, but they cannot be pressured to do so.

Reason #2: Lack of Market Data

Another reason for a difference in appraised value can be caused by a lack of supportable evidence. All appraisers rely heavily on recent sales of properties that are similar to the property being appraised. Most lenders will require that all of the sales used in the appraisal have to be sold within 6 months and be within a limited distance. This can severely limit the data available to the appraiser.

Let’s say that Mr. Brown decided to refinance in the spring after what was a record-breaking terrible winter. When you combined below zero temperatures, tons of snow and COVID-19 it isn’t much of a surprise that there were hardly any sales all winter. The appraiser has to use what few sales are available if he wants the bank to accept the appraisal. This lack of data can, unfortunately, slightly skew the true market value. The appraiser has to balance the requirements and stipulations set by the mortgage market with his ethical requirement to determine a fair market value for the property. In these cases, it is common for the new appraised value to differ slightly from a prior value.

Reason #3: Economic Impact

A third, and less common, reason an appraisal comes in low is due to a change in the economic climate within the market area of the subject property. We have all seen how the national economy affects property values. A change in the local economy can also raise or lower local property values.

For example, let’s say a major employer in the area of Mr. Brown’s home shut down. There was a loss of over 2,500 jobs. Because of the uncertainty of future employment, fewer people are looking to buy homes in the area. In order to encourage buyers, sellers slowly reduce the list price of their homes. This creates lower sale prices than were seen only one year ago. An appraisal must reflect this loss in value – even if it is only temporary.

A homeowner always hope that his property is appreciating in value. A lower appraised value can seem devastating, but before you freak out and assume the worst, consider the possible causes. Look at the range of value contained in the appraisal report. What was the value of the cost approach (usually establishing the high range) and what were the adjusted values of each of the comparable properties (creating the low and mid-ranges)? If your first appraisal is inside that number, then as long as the appraisal can be used by your lender for the refinance, do not fret, the value is still there.

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What an Appraisal Report is Really Telling You

What an Appraisal Report is Really Telling You

Receiving a copy of a residential real estate appraisal report can be a little intimidating. It may seem like a lot of money for such a such a short report. But that is hardly the case. That appraisal report you are holding tells you so much more than a simple property value.

We’re going to examine, in detail, the standard form appraisal report that is most commonly used for residential appraisals. It is called the Uniform Residential Appraisal Report (URAR). This appraisal report can be used for a variety of real estate-related transactions such as a obtaining a mortgage, verifying a purchase price, estate planning, or settling a divorce. While there are other appraisal reporting methods, the URAR is the appraisal you will most likely receive when valuing any single-family residential property.

The Three Valuation Sections of an Appraisal Report

There are three valuation sections of an appraisal report – the cost, sales comparison and income approaches to value. These are contained within the appraisal form, but depending on the property, not every approach to value may be utilized by the appraiser. Let’s look at each of these three real estate valuation sections to see what your appraisal report is really telling you.

The Sales Comparison Approach

The sales comparison approach is designed to compare your property, the subject, with three or more similar properties that have recently sold. The grid below allows an appraiser to compare important features such as the land (called the site), the design or style of the home, the age, condition, rooms and size (called the Gross Living Area). There is also space for the basement, heating and cooling systems, garage, decks and a few lines for non-standard features.

Sales Comparison Approach table

To the right of each comparable you will find monetary adjustments that add or subtract value from the comparable’s sales price. In the above example, your home has 2,862 square feet but comparable #2 only has 2,310 square feet. The appraiser must add the value of the 552 square feet to make the comparable similar to your property. In other words, if the comparable was the same size as your property, what would the buyer have paid for it? That is the concept behind the sales comparison approach.

There is a section after the comparison grid whereby the appraiser will explain his or her reasons for making the adjustments. Then they will take the adjusted sales prices of the comparables and use it to set the value of your property. Sometimes it will be a simple rounded average and other times, one of the comparables are more similar to your property, so the appraiser may place more weight on that value.

In the example show above, it looks like comparable #3 was more similar. Notice that the “Gross Adjustments” were only 4.3% but they were 21.4% for comparable #1. So, let’s say the appraiser decides that comparable #3 is a better indicator of value and places more weight on that value, the appraiser may conclude that the market value of your property is $242,500.

The Cost Approach

The cost approach looks at what it would cost to buy an identical parcel of land and construct an identical home – just like it is right now. The principle behind this approach is that a buyer would not purchase your home if he or she could build an identical home for less.

Cost Approach to Value info

This approach works well for newly constructed homes, but does not help much if the property is old, antiquated, or suffering from extensive deferred maintenance. This approach may or may not be included in your appraisal report.

In this example, the appraiser determined that the indicated value by the cost approach was $259,050. It is common to have the cost approach be slightly higher than the sales comparison approach, that is unless your home has been built within the last 5 years.

The Income Approach

The income approach is used only if the property is being rented or would be most likely rented by a new buyer. This approach is rarely used with single-family residences. Even if your property is currently being rented, if it is surrounded by owned homes then the appraiser will most likely not consider this approach a good indicator of value. It is common that the income approach value is substantially less than what is indicated in the sales comparison approach.

Income Approach to Value Data

The Real Estate Appraisal Range of Value

Right below the sales comparison approach, you will find the reconciliation section. This is where the appraiser will determine the property’s value and explain their reasons for their conclusions.

Real Estate Appraisal Range of Value reconciliation section

It is most likely that the appraiser will decide that the sales comparison approach is the strongest indicator of the property value. In the bold section at the bottom, the market/appraised value of the property was determined to be $242,500. But, in reality, the appraiser is supplying you with a range of value.

Where is the Appraisal Range of Value?

Even though the appraisal report must conclude with one value number, it is more accurate to say that the appraisal as created a range of value. Notice what the appraisal report has revealed.

Appraisal Range of Value Report

How Can I Use the Appraisal Range of Value?

The appraisal contains at least six different values. The combination of these values creates a range of value. Knowing this range can help you to make more informed decisions. For example, if you will be selling your house, the appraisal just told you that the list price should be close to $254,500 and the lowest accepted price should be $240,300. Anywhere in between and you have received the market value for your property. If the appraisal is being used to get a mortgage, the bank is going to use the appraised value ($242,500). If that number is too low for you to finance as much as you would like, the range of value shows you the appraiser’s “wiggle-room.”

In a perfect world the appraised value should come in the middle of the range with there being no more than a 5% difference plus or minus within the range. In this example, the appraised value is less than 1 percent from the low range of value. This could indicate that the appraiser may be justified in raising the value closer to the $244,000 mark. Though remember that comparable #3 was the best indicator of your property value, so the appraiser may decide the value must remain where it is.

The next time you receive a residential real estate appraisal, look beyond the appraised value and see what the appraisal report is really telling you.

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