The Key to Compelling Appraisal Reports: Well-Supported Adjustments

In the world of real estate, appraisals play a critical role in determining a property's fair market value. This value is crucial for various stakeholders, including lenders who base loan amounts on the property's worth and buyers or sellers who want to ensure they're getting a fair deal. For appraisers, crafting accurate and well-supported appraisals is essential to ensuring trust in the profession and the integrity of the real estate market.

This blog post delves into a YouTube video by Brian Reynolds, a certified appraiser and instructor, where he discusses the importance of appraisers providing strong support for the adjustments they make in appraisal reports. The video features a conversation between Reynolds and John Dingeman, who works for Class Valuation, a company that assists lenders in evaluating appraisals.

Why Should Adjustments in Appraisal Reports Be Well-Supported?

The video highlights a crucial aspect of appraisal reports: the need for appraisers to justify their adjustments with credible reasoning. Simply stating an opinion of value without backing it up isn't sufficient. According to the Uniform Standards of Professional Appraisal Practice (USPAP), which sets the benchmark for professional appraisal practice, appraisers are obligated to develop credible assignment results. This translates to having solid support for their property value estimations.

The conversation between Reynolds and Dingeman reveals that a common reason for lenders to push back on appraisals is a lack of explanation for the adjustments made. Dingeman emphasizes that when lenders don't comprehend the basis for the adjustments, it can lead to complications. Reynolds acknowledges this and underscores the importance for appraisers to be prepared to explain their rationale.

Moving Beyond Experience: Techniques for Supporting Adjustments

Traditionally, some appraisers have relied solely on their years of experience to justify adjustments. However, as the video emphasizes, experience alone is not enough in today's market. Appraisers need to be equipped with recognized techniques to arrive at adjustments and meticulously document them within the appraisal report.

The video offers valuable insights into various techniques appraisers can leverage to support their adjustments. Here are some key takeaways:

• Sales-comparison approach: This technique involves meticulously comparing the subject property to similar properties that have recently been sold. By analyzing these comparable properties, appraisers can identify relevant differences that influence value. For instance, if the subject property has a pool and comparable properties without pools have recently sold, a market analysis would help determine the value adjustment attributable to the pool.

• Cost approach: This method involves estimating the cost of replacing the subject property. This can be helpful in situations where there aren't enough comparable properties available for market analysis. For example, if a unique property in a rural area is being appraised, a cost analysis might be employed to estimate the cost of constructing a similar property from scratch.

• Income approach: This technique is used to estimate the income-generating potential of a property. This is particularly applicable for income-producing properties such as apartment buildings or commercial spaces. By estimating the property's potential income and applying a capitalization rate, appraisers can arrive at a value conclusion.

Documenting the Thought Process: The Key to Transparency

The video underscores the importance for appraisers to meticulously document their thought process within the appraisal report. Dingeman highlights that thorough documentation aids lenders in grasping the reasoning behind the adjustments. This not only fosters transparency but also reduces the likelihood of the appraiser needing to revise the report later.

A well-documented appraisal report should include:

• Data sources: This section should meticulously list all the sources of information used by the appraiser, including property details, comparable property data, and any other relevant information.

• Analysis performed: The appraiser should clearly outline the specific methods used to arrive at adjustments, such as market analysis, cost analysis, or income capitalization.

• Conclusion reached: This section should clearly explain how the adjustments made have influenced the final appraised value of the property.

By following these guidelines, appraisers can craft appraisal reports that are not only credible but also transparent and easy for lenders to understand.

The Bottom Line: Well-Supported Adjustments Foster Trust and Accuracy

In conclusion, the YouTube video by Brian Reynolds and John Dingeman emphasizes the significance of well-supported adjustments in appraisal reports. By employing a combination of recognized techniques like market analysis, cost analysis, and income capitalization, and meticulously documenting their thought process, appraisers can deliver reports that are not only accurate but also inspire trust from lenders and other stakeholders in the real estate market. This fosters a more efficient and streamlined real estate transaction process for all parties involved.