What Is An Opinion Of Value?
The whole job of a real estate appraiser is to develop an opinion of value based on the scope of work determined by the appraiser and based on information researched by the appraiser and given to the appraiser by the client. Scope of work, as defined by USPAP (Uniform Standards of Professional Appraisal Practice), is "the amount and type of information researched and the analysis applied in an assignment."
On a most basic level, in residential real estate appraising, and for relatively simple properties (a house on a small piece of land, for instance), I generally use paired sales analysis. That is, other properties that have transferred recently, usually in the past 3-6 months, in close proximity, with similar size, features, utility and condition are compared to the subject property. Using dollar amount adjustments, the comparable properties are adjusted higher or lower to account for inferiority or superiority of that comparable property to the subject property.
A minimum of three comparable properties are used in paired sales analysis. In many cases, a forth or a fifth comp is used to further validate the opinion of value. Once the appraiser adjusts the comparables, they decide on a value within the range of the values of the adjusted comparables. Another approach to value called the cost approach is often used to estimate the costs attributable to the land and the improvements on the land. Either way, adjusting comparables and considering the costs helps the appraiser decide on the subject's value. However, ultimately an appraisal is an OPINION of value. This value should not be disputed by a homeowner or lender.
Every step of the appraisal process takes years to learn. Finding accurate information on the subject property, choosing the right comparables, inspecting the property, writing the report and determining the opinion of value are all tasks that are equally important in the appraisal process. To many people, an appraiser's job is as simple as taking some pictures, measuring the house and thinking up a value. Actually, when done correctly, the appraisal process takes four to twenty hours, depending on the complexity of the assignment and travel time.
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