“FYI”:
For Consumers of Services
A few things that an informed consumer
of services needs to know:
#1: All Licensed Appraisers are NOT equal!
That is,
licensing of appraisers is via an agency of your state’s
government.
The licensing process established MINIMUM educational, experience,
testing, and other criteria for a prospective appraiser to earn
a license (side-note: In Illinois, there are 3 levels of licensing:
(a) Associate Appraiser—this is a “trainee” license-level
(b) Certified Residential—specialist in all residential
(up to 4-unit property) properties; (c) Certified General—concentration
in Commercial, Industrial, Special-Use Property.
All licensed appraisers are required to adhere to the Uniform
Standards of Professional Appraisal Practice (or, USPAP).
Lee Lansford, IFA, is 1 of 27 (as of Nov. 2007) “Appraiser
Qualifications Board” Certified Instructors of the USPAP
in Illinois.
The license level held by the appraiser does not necessarily
indicate that a licensee is competent to appraise all property
types for which he or she is licensed in all areas!
The important point is that holding a license is the MINIMUM
requirement for providing appraisals for use by a Federally Insured
Depository Institution in a Federally Related Transaction.
In selecting
an appraiser, The Appraisal Foundation (authorized by Congress
as THE source
of Appraisal Standards and Appraiser
Qualifications) lists as #1 the appraiser’s “Affiliation
with a Professional Association”.
Lee Lansford, IFA, is a designated member of the National Association
of Independent Fee Appraisers (NAIFA) and an Associate Member—Residential,
of the Appraisal Institute (AI).
Among other
things to consider, per The Appraisal Foundation, is “Reputation”:
Lee Lansford was presented with the “Appraiser of the Year” award
for 2006 by the Illinois branch of the NAIFA. Further, he is
past-Director of the Illinois Coalition of Appraisal Professionals
(ICAP) and has served the NAIFA as Regional Governor, State Director,
and President of the Chicago Metro Chapter.
As The Appraisal
Foundation states, “Selecting an ethical
appraiser who complies with USPAP is the consumer’s best
assurance that he or she is working with a professional who will
provide quality services.”
#2: What is an “Appraisal”?
From the
NAIFA, “An appraisal is an opinion of value or
the act or process of estimating value” and “…after
thorough analysis of all general and specific data gathered from
the market, a final estimate or opinion of value is (arrived
at).”
Also, “An appraiser does not create value, the appraiser
interprets the market to arrive at a value estimate.”
And, from
the Appraisal Institute, “An appraisal is a
professional appraiser’s opinion of value. The preparation
of an appraisal involves research into appropriate market areas;
the assembly and analysis of information pertinent to a property;
and the knowledge, experience and professional judgment of the
appraiser.”
An appraisal
is NOT a “home inspection”. The appraiser’s
viewing of the property is not meant to discover hidden, or unapparent,
property deficiencies. The appraiser’s viewing of the property
is not to be understood as—for example—inspections
by qualified experts in matters of the mechanical systems, environmental
matters, structural systems, or pest infestation.
An appraisal
is (per the Uniform Standards of Professional Appraisal Practice—USPAP) “the
act or process of developing an opinion of value; an opinion
of value.”
Thus, in an appraisal for market value, the value arrived at
is the professional opinion of the appraiser.
#3: What are the components of an appraisal report and what
are the most important considerations in the valuation of real
property?
Per the AI, “a written appraisal report generally consists
of: a description of the property and its locale; an analysis
of the ‘highest and best use’ of the property; an
analysis of sales of comparable properties ‘as near the
subject (side-note: and as reasonably a market substitute for
the Subject property as is appropriate given the complexity of
the property within its environment) as possible’; and
information regarding current real estate activity and/or market
trends.”
Further, the appraisal of real property requires consideration
of the three traditional approaches to value: the Sales Comparison
Approach, the Cost Approach, and the Income Approach.
According
to the AI, “the value indicated by recent sales
of comparable properties, the current cost of reproducing or
replacing a building, and the value that the property’s
net earning power will support are the most important considerations
in the valuation of real property.”
In appraisal
assignments where the value sought is “Market
Value”, the Sales Comparison Approach is definitely an
approach that is necessary in order to communicate a credible
appraisal. Where both applicable and necessary in order to communicate
a credible appraisal, either or both the Cost Approach and Income
Approach will be included in the appraisal.
#4: What is the role of the appraiser and how do well-credentialed
appraisers add value to the situation?
According
to the Appraisal Institute, the role of the appraiser “is
to provide objective, impartial and unbiased opinions about the
value of real property - providing assistance to those who own,
manage, sell, invest in and/or lend money on the security of
real estate. That is, the appraiser can act ONLY as an advocate for the property
interest being appraised, NOT the personal interest of the client.
Further,
as exactly how a well-credentialed appraiser may “add
value” to the situation: “They bring knowledge, experience,
impartiality and trust to the (situation).”
