STEP #1: THE APPRAISER MUST DEVELOP A CLEAR UNDERSTANDING OF THE APPRAISAL ASSIGNMENT. THIS IS ACCOMPLISHED BY DETERMINING:

How the Appraisal will be Used:
For divorce the appraisal is used to determine defined value for equitable distribution of this marital asset.

The Exact Location of the Real Estate:
Normally, this would be the legal address or description as defined in the deed.

The Real Property Rights to be Appraised:
In appraisal terminology, the term Real Estate refers to the physical land and appurtenances including structures affixed thereto. The term Real Property includes the interest, benefits, and rights inherent in the ownership of physical real estate. It is possible to own all of the rights in a parcel of real estate or only a portion of them. A person owning all the rights is said to have fee simple title, which is the absolute ownership unincumbered by any other interest or estate. However, it is subject to the limitations of the four powers of government: taxation, eminent domain, police power and escheat. The valuation made by the appraiser is of the Fee Simple Estate.

The Definition of Market Value Used in the Appraisal:
The appraiser must define exactly what is meant by market value. If market value is not defined, the appraiser would not have any basis on which to answer resulting questions.

The Date the Property Rights are Valued:
The economic forces that influence value are constantly changing. Therefore, the value estimate is considered valid only for the date of the valuation.

The Scope of the Appraisal:
This refers to the degree to which the appraiser collected data and confirmed its accuracy. This is done so a third party knows how much weight can be placed upon opinion of value.

Other Conditions that would Limit the Reliability of the Value Conclusion:
This is done to protect the appraiser and make the client or third party aware of any conditions that were not reported or considered.

STEP #2: AFTER DEFINING THE PROBLEM THE APPRAISER CONDUCTS A PRELIMINARY ANALYSIS TO DETERMINE WHAT DATA SHOULD BE COLLECTED, AS WELL AS THE QUANTITY AND QUALITY OF THE DATA REQUIRED TO COMPLETE THE APPRAISAL. THE SELECTION AND COLLECTION OF DATA IS SEGREGATED INTO THREE AREAS.

General Data About the Region:
1. The geographic location
2. The history of the area
3. Climate
4. Educational Facilities
5. Health Care Facilities
6. Religious Facilities
7. Public Utilities
8. Sports and Recreation
9. The Arts and Entertainment
10. Retail areas and shopping centers
11. The amount of business and industry
12. Transportation

After the data is collected it is analyzed and trends are determined regarding Social, Economic, Government and Environmental Forces that can have an impact on value.

Social Forces:
Social forces are influenced by changes in the growth or reduction in population and the characteristics of that population

Economic Forces:
Economic forces influence the relationships between the current demand and supply for goods and services and the anticipated ability of the population to be able to pay for the goods and services it needs or demands.

Governmental Forces:
The legal climate and the political actions of government within the region can have very positive or negative impacts on value.

Environmental Forces:
The environmental forces that affect real property are directly related to the relationship between a property or neighborhood and all possible origins and destinations of residents going to or coming from a property or area within the region.

Specific Data About the Subject Property:
Specific data is collected regarding the site:
1. Size and shape of the subject property
2. Land Topography
3. Type of Soil
4. Streets and Access to the Property
5. Utilities (Water, Sewer, Gas, Electric, etc.)
6. Site Improvements (Curbs,Sidewalks, Paving, Signs, etc.)

Specific data is collected regarding physical improvements:
1. Type (Residential, Commercial, Retail, Industrial, etc.)
2. Quality of construction
3. Number of stories
4. Building Area (Size and Number of Rooms)
5. Type of Foundation
6. Floors, Ceilings, Interior Construction
7. Plumbing, Heating, Cooling, and Electrical
8. Roof Construction

Specific Data Regarding Comparable Properties:
1. Supply and Demand
2. Number of Proposed new Properties
3. Number of Potential Property users
4. Future Demand for the type of Property
5. Number of Vacant properties
6. Absorption Rates

STEP #3: THE APPRAISER ANALYZES THE INFORMATION GATHERED IN STEPS #1 AND #2 TO DETERMINE THE HIGHEST AND BEST USE OF THE PROPERTY AS IF THE LAND IS VACANT (WITHOUT BUILDINGS, ETC.) AND AS IMPROVED (INCLUDING BUILDINGS, ETC.).

The concept of Highest and Best Use is the key element in determining market value. It is used to analyze what motivates buyers and what price they are willing to pay for unimproved and improved property. In estimating Highest and Best Use, there are essentially four stages of analysis:

1. The Use Must Be Possible: What uses of the site are physically possible.
2. The Use Must Be Permitted (Legal): What uses are allowed by zoning and conversely eliminated by deed restrictions.
3. The Use Must Be Feasible: Of the physically possible and permissible uses, which of these uses will return a profit to the owner of the property.
4. Highest And Best Use: Out of all the feasible uses, which single use will return the greatest profit to the owner.

STEP #4: ONCE THE HIGHEST AND BEST USE HAS BEEN DETERMINED THE APPRAISER VALUES THE LAND AS UNIMPROVED

This is done by analyzing sales of other properties that are similar to the property being appraised (must have the same Highest and Best Use). The conditions and nature of each sale are analyzed and adjustments are made for the different characteristics involved.

STEP #5: NEXT THE APPRAISER DETERMINES THE MARKET VALUE OF THE LAND AS IMPROVED BY THREE DIFFERENT VALUATIONS METHODS.

Cost Approach:
This approach is based on the theory that a given buyer will base the worth of a property on the assumption that he/she would not pay more for a property than it would cost to replace the property with its existing improvements in the condition in which they currently exist. Under this approach the appraiser determines the costs associated with either replacing or reproducing the existing structures and site improvements and then subtracts from this value of the depreciation (general wear and tear) that has accrued to the property. The net result becomes, what is known as, the indicated market value.

When properties are new, market values and costs usually are very similar because there is very little, if any depreciation accrued to the property. For this reason, the Cost Approach is important in estimating the market value of new or relatively new construction. It is also very important when appraising the market value of proposed construction, special-purpose properties (example - churches, bowling facilities and etc.).

Sales Comparison Approach:

The most common method used to estimate the market value of land and residential properties is the Sales Comparison Approach. The major premise of the Sales Comparison Approach is that the market value of a property is directly related to the prices of comparables, competitive properties. In this approach, the appraiser surveys and researches the market for recent sales of properties that are very similar to the property being appraised. When choosing comparable sales, the appraiser looks for properties with similar locations, size, utilities, zoning, and physical improvements. The appraiser then makes adjustments to the comparables to reflect any differences between the property being appraised and the comparables that would have an effect on market value. Once the adjustments are made, the appraiser analyzes the adjusted values for each comparable, and then determines the value of the property being appraised.

Income Capitalization Approach:

The Income Capitalization Approach is centered on the theory that income producing real estate is usually purchased for investment purposes, and from an investor's point of view earning potential is the critical factor affecting the value of the property being appraised. An investor who purchases income-producing real estate is essentially trading present dollars for the right to receive future dollars. This approach to valuation utilizes different techniques and mathematical calculations that an appraiser would use to analyze a property's ability to produce income. The annual income and the expected reversionary value (value of the property when it is sold after a period of time) are converted into a value estimate.

STEP #6: THE THREE APPROACHES TO VALUE ARE RECONCILED INTO A FINAL VALUE ESTIMATE.

In order for the appraiser to form a defensible conclusion regarding the final value, the three approaches to value are analyzed based upon the following criteria:

1. Appropriateness: The appraiser determines how important each approach to value is with regards to the use and purpose of the appraisal in question.
2. Accuracy: The appraiser ranks the three approaches to value based upon his level of confidence in the credibility of the data used in each approach and, thus, the conclusion as to value drawn from each approach.
3. Quantity: The appraiser analyzes the amount of data collected and used to support each approaches value conclusion.

Based upon this analysis, the appraiser forms an opinion as to a single dollar value (sometimes a range into which the value is expected to fall) for the real estate being appraised.

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