This document outlines the appraisal process, including defining the problem, determining scope of work, collecting and analyzing data, and reporting results. It discusses key steps like identifying the client and property, determining value type, researching comparables, and using the three approaches (sales comparison, cost, and income). The appraiser must reconcile data analyses, consider strengths/weaknesses of each approach, and communicate an informed value estimate in a report for the client.

1. Unit 6: The Appraisal Process

2.  CMA, BPO, or Appraisal Report
• Comparative Market Analysis
o A comparative market analysis is a comparison
analysis that real estate licensees use to help potential
sellers determine an appropriate listing price for their
property or to help buyers determine an appropriate
offering price for a property.
o To create a CMA when dealing with potential sellers,
the real estate licensee finds recently sold houses that
are similar to the seller’s house in location, style, and
amenities.
o These similar sales are called comparable sales or
more simply comps.

3.  CMA, BPO, or Appraisal Report (continued)
• Broker Price Opinion
o A broker price opinion (BPO) is a written opinion of the
probable selling price of a property.
• Appraisal Report
o The appraisal report is the appraiser’s opinion of
value, typically presented in a written format.
o The appraiser’s workfile for a particular assignment
consists of all the documentation necessary to support
the analyses, opinions, and conclusions conveyed in
the appraisal report.

4.  Steps in the Appraisal Process
• Define the Problem
o Elements That Need Identification When Defining the
Problem
 Client and other intended user(s)
 Intended use of the appraisal
 Type of value to be estimated
 Date of the value estimate
 Subject property and its relevant characteristics
 Any unusual assignment conditions
o Identify the Client and Intended Users
 The client is the party, or parties, who hire the appraiser for a
specific assignment.
 Parties intending to use an appraisal are called intended
users by USPAP.

5.  Steps in the Appraisal Process (continued)
• Define the Problem
o Identify the Intended Use
 Identifying the intended use of the appraisal lets the
appraiser know why he or she is being hired to appraise the
property.
o Identify the Type of Value to Be Estimated
 Appraisers need to know which type of value they are being
asked to analyze in an appraisal assignment.
o Identify the Date of the Value Estimate
 The effective date of an appraisal can be a present, past, or
future date.
 A retrospective appraisal looks at the value of a property at a
point of time in the past.
 A prospective appraisal looks at the value of a property at a
future point in time.

6.  Steps in the Appraisal Process (continued)
• Define the Problem
o Identify the Subject Property
 The property being appraised is called the subject
property.
o Identify Any Special Assignment Conditions
 A hypothetical condition is defined in USPAP as “that which
is contrary to what exists on the effective date of the
assignment results, but is supposed for the purpose of
analysis.”
 An extraordinary assumption is defined as “an
assumption, directly related to a specific assignment, as of
the effective date of the assignment results, which, if
found to be false, could alter the appraiser’s opinions or
conclusions.”

7.  Steps in the Appraisal Process (continued)
• Determine the Scope of Work
o Reasons Why Scope of Work Varies
 Degree to which property is inspected or identified
 Extent of research into physical or economic factors that
could affect the property
 Extent of data research
 Type and extent of analysis applied to arrive at opinions or
conclusions
• Collect, Verify, and Analyze All Relevant Information
o Collect Data
 Data is collected and gathered from many sources.
 This includes general economic, demographic,
environmental, and sociological information affecting
markets and trends in specific real estate markets.

8.  Steps in the Appraisal Process (continued)
• Collect, Verify, and Analyze All Relevant Information
o Collect Data
 General Data Sources
• National data can be obtained from government
publications, newspapers, and magazines.
• State offices such as transportation agencies, departments
of housing and community development, and departments
of commerce and economic development may provide
information regarding future development, employment
trends, income levels, etc.
• Regional data (metropolitan areas such as San Francisco
Bay, Southern California, or the Central Coast) can be
gathered from monthly bank summaries, regional planning
commissions, and government agencies.

9.  Steps in the Appraisal Process (continued)
• Collect, Verify, and Analyze All Relevant Information
o Collect Data
 Local Data Sources
• Community data (town or city) can be obtained from the
Chamber of Commerce, City Planning Commission, city
government agencies, banks, and real estate boards.
o Neighborhood data can be obtained from personal
inspections, real estate agents, or area builders.
 Specific Data Sources

10.  Steps in the Appraisal Process (continued)
• Collect, Verify, and Analyze All Relevant Information
o Verify Data
 Once all the data has been obtained by the appraiser, it is
checked for both accuracy and reliability.
o Analyze Data
 There are three commonly accepted methods used to value
real estate. They are the sales comparison approach, the cost
approach, and the income approach.
 Sales Comparison Approach
• The sales comparison approach is the process of developing an
opinion of value by using sales of similar properties to
estimate the value of the subject property.
• An arm’s length transaction is one in which neither the buyer
nor the seller is acting under duress, the property is on the
market for a reasonable length of time, and the buyer and the
seller both have reasonable knowledge of the property’s assets
and defects.

11.  Steps in the Appraisal Process (continued)
• Collect, Verify, and Analyze All Relevant Information
o Analyze Data
 Cost Approach
• The cost approach is the process of determining value by
adding up the costs involved.
• Depreciation is a loss in value from any cause.
 Income Approach
• The income approach is the process of determining value
based on the amount of income that the property is expected
to produce.
• Value = Gross Income × Gross Income Multiplier
• Value = Net Operating Income ÷ Capitalization Rate
• Gross income is total annual income received before any
expenses are deducted.
• Net operating income is gross income minus operating
expenses.
• A capitalization rate (cap rate) is the appraiser’s estimate of the
rate of return a property will produce on the owner's
investment.

12.  Steps in the Appraisal Process (continued)
• Reconcile the Information Analyzed
o Reconciliation is the process of analyzing the values
obtained using the different approaches in order to
develop an opinion of the final estimate for the
property in question.
o During the reconciliation process, the appraiser
reviews his or her work and considers:
 scope of work
 quantity and quality of the data collected in each approach
 inherent strengths and weaknesses of each approach
 relevance of each approach to the subject property and
market behavior

13.  Steps in the Appraisal Process (continued)
• Report the Assignment Results
o The final task is to communicate those assignment
results to the client.
o The appraisal report is the expression of the
appraiser’s service to the client.
o It usually includes the data considered and analyzed,
the methods and approaches used, and the reasoning
that to led the final value estimate of the property.
o The detail and style of report is determined when the
appraiser and client first meet to discuss the client’s
needs and decide on the scope of work.