BLOG VIEW: The process of property appraisal is an integral element of the real estate industry. The goal of the appraisal is to determine the property value as accurately as possible. This is done with the consideration of several factors such as condition, location, comparable sales, and size. No matter if it is investors, lenders, or buyers and sellers, the appraisal process is used by everyone in the industry.
That said, a property appraisal process is furthest away from being straightforward. With so many aspects that need to be taken into consideration, the accuracy of the appraisal is dictated by how well the appraisers can deal with the challenges. The one thing that is most challenging for the appraisers is the data itself. It is crucial that all of the data is available to them and that it is reliable. If the information regarding the age, what renovation has been done on the property, and the overall condition is not accurate, then the appraisal cannot be done accurately.
How Property Appraisal Works
As we have mentioned, a property appraisal is a process where a registered appraiser determines the most accurate value of the property in question. This is done in order to help with selling, buying, or financing the property.
The appraising process is specifically done by professional appraisers that underwent adequate training on how to become an appraiser in order to provide accurate results.
The process itself takes several crucial steps. To begin with, the appraiser needs to do a complete inspection of the property to determine the overall quality. Once that is finished, the property is then compared to the other ones in the area in order to determine the market value.
During the property inspection, an appraiser needs to carefully take into consideration overall market conditions at the current time, the location of the property, its size, and lastly the condition it is in.
Challenges Appraisers Face Today
Today, there are several challenges that appraisers need to face if they want to succeed. Here we will go over these challenges which range from common ones to more problematic ones, as well as how you can overcome them.
In the case of common challenges, the lack of comparable sales data is the most notable one. As we have mentioned, residential real estate appraisers need to use the most recent sales data from similar properties nearby in order to accurately determine the value of the property. So, in the case when an appraiser does not have enough data for comparison, it can be very difficult to give an accurate value of the property.
Additionally, another problem that appraisers face is the overall condition the property is in. Considering that the condition plays a big part in the property value, depending on how bad it is, an appraiser might have a difficult time accurately determining the value. If there are some serious structural issues, sometimes it can be very easy to undervalue the property which can be a big problem.
Errors and Biases
Errors and biases are other challenges that real estate appraisers face in the industry today. The most common problem that arises here is the error in the measurement of the property. In the case of this happening, with incorrect measurements, an appraiser cannot calculate the correct value of the property in question.
Next up, there is the problem of biases. This is yet another challenge that has the potential to be quite problematic. Everyone has their own personal beliefs and opinions. However, during the appraisal process, these can create biases that seriously impact the accuracy of the value. For example, this can easily be seen if the appraiser has a certain bias towards the neighborhood the property is in or some elements that are part of the property. This can all contribute to the undervaluation.
As with anything else, keeping proper documentation is a crucial aspect of appraising. An appraiser needs to have everything documented during the appraisal process. This includes all of the data they used, what calculations they made, and lastly a well-documented final report. Keeping everything documented accurately is crucial in order to not have problems at a later date. If there is a mistake in the documents, the final report will be inaccurate and therefore the determined value will not be correct.
The Appraisal Report
Last but not least, we have the appraisal report. As we have just mentioned, an appraisal report is an extremely important part of the evaluation. If there were mistakes during the process, the report itself will be inaccurate creating more problems. However, the report itself can also be a problem even if the calculations were done correctly. If an appraiser wrote the report poorly, accidentally leaving out crucial pieces of information, then the report will only create problems and confusion.
Kevin Hecht has been a real estate appraiser since 1987, and currently holds a certified residential appraiser license in Missouri. As a McKissock Learning instructor, Kevin specializes in market analysis, USPAP and real estate economics.
Photo: Derek Thomson