Valuation Process

The valuation process begins when an appraiser identifies the appraisal problem and ends when they report a conclusion to you. The most common appraisal assignment performed is to estimate market value.

Traditionally, appraisal techniques are the specific procedures within the three approaches that are applied to derive indications of real property value. In assignments to estimate market value, the ultimate goal of the valuation process is a defensible value conclusion that reflects all the factors that influence the market value of the property being appraised. To achieve this goal, an appraiser studies a property from three different viewpoints, which correspond to the three traditional approaches to value:

  1. The value indicated by recent sales of comparable properties in the market—the sales comparison approach.
  2. The current cost of reproducing or replacing the improvements, minus the loss in value from depreciation, plus site value—the cost approach.
  3. The value of a property's earning power based upon the capitalization of its income—the income capitalization approach.

The three approaches are interrelated; each requires the gathering and analysis of sales, cost, and income data that pertain to the property being appraised. From the approaches applied, the appraiser derives separate indications of value for the property being appraised. One or more of the approaches may not be applicable to a specific assignment or may be less reliable due to the nature of the property, the needs of the client, or the data available.

To complete the valuation process, the appraiser integrates the information drawn from market research and data analysis and from the application of approaches to form a final defensible estimate of value.

Valuation Steps:

  1. Define the problem.
    1. Identify the realty
    2. Identify the property rights
    3. Establish the objectives (define value)
    4. Establish the effective date
    5. Use of the appraisal
    6. Scope of appraisal
    7. Other limiting conditions
  2. Plan the Appraisal
    1. Identify pertinent demand and supply factors
    2. Identify data requirements
    3. Identify and develop data sources
    4. Identify methodology and procedure
    5. Design research program
    6. Outline appraisal report
    7. Program work schedule
  3. Data Collection
    1. General Data - regional, local
    2. Specific Data - site and improvements, cost and depreciation, income/expense and capitalization rate, history of ownership and use of property
    3. Comparative Data - inventory of competitive properties, sales and listings, offerings
  4. Highest and Best Use Analysis
    1. Land as though vacant
    2. Property as improved
  5. Application of the Three Approaches
    1. Cost Approach
    2. Sales Comparison Approach
    3. Income Capitalization Approach
  6. Reconciliation of Value Indications and Final Value Estimate
  7. Report of Defined Value