A flipbook is a book with a series of pictures that change slightly with the turn of each page. When flipping thru one of these books, the viewer’s mind fills in the gaps between pictures so that an animated story and picture develops.
According to Wikipedia, the oldest documented flip book appeared on March 18th, 1868. At that time, it was patented by John Barnes Linnett. They were one of the original forms of animation according to that article. Over the years, they became mechanized. People still enjoy making their own flipbooks.
Here is an example of a flip book.
Each page is slightly different from the one before it. Each drawing contributes a little to the overall story being told. With each turn of the page comes a clearer picture of the story.
Have you ever read a real estate appraisal report? In a way, they should read like a flipbook. Each section should contribute a little to the overall story of the value of the home being appraised.
Just as moving from one page to another in a flip book does not give every detail, leaving our minds fill in the rest of the story, likewise, appraisal reports usually don’t give every detail of information about what the appraiser has analyzed. However, enough information should be shared to help the reader begin to develop an idea of how the property being appraised fits into the overall market.
Have you ever watched a movie where the opening scene of a shot of earth? Or perhaps you’ve used Google Earth. The video slowly zooms in on a country, then a state. Then the picture zooms in on a city and finally to the home where the story will take place. The neighborhood section provides an overall picture of regarding the characteristics of the neighborhood or setting for the story unfolding.
This first section of the report discusses some of the positive and negative aspects of a neighborhood that may impact market value. Additionally, this is where the appraiser will describe things like the range of home prices and ages of homes in that area. It should provide information on the trends for prices in that area. Are they declining, stable or increasing, and why?
How much of the land is used for residential, commercial, industrial, and so on? What is the density of the area? Does the neighborhood have lots of homes on smaller lots, or are most homes large and more spread out? Is there new construction in the area? Does it compete with the property being appraised?
Once we have a general picture of the neighborhood, it’s time to flip the page, and zoom in on the land.
In this section, the appraiser will talk about the description of the lot. For instance, its size and shape. Utilities or lack thereof. Topography. And the appraiser will indicate not only the zoning but the appraiser’s opinion of the Highest & Best Use (HBU) of the property. The HBU is an important description, because it will determine what kind of main character, namely the property being appraised, we are dealing with.
Is it going to be vacant land, a single-family home of some kind, a multi-family home of some kind or a commercial or industrial property?
Once we have a good picture of the land and what can be used on it, it’s time to flip the page to discuss the main character, namely, the property being appraised.
What style of house is being appraised? How big is it? What are its attributes? Is there anything about the improvements that would positively or negatively impact its market value? This part of the story is where we get to know the property being appraised more intimately..
Often, an appraiser will walk thru the property to take note of the property’s condition, upgrades, finishes, quality and features. There are times when an appraiser will not physically see the property. In this case, they rely upon other data sources to develop an opinion regarding these things.
All of this is described in the Improvements section of the report. By this point in the story, the reader should have a general picture of the characteristics of the neighborhood or market area, the lot upon which the improvements are located, and information on the home and any other improvements on the property.
ENTER SUPPORTING ACTORS
At this point, the appraiser will flip the page and will introduce the supporting actors, the comparable sales being used for comparison purposes.
Comparable properties are those that a buyer would consider as a substitute to the one being appraised. So, it may not be the same, but similar enough to be a viable option to a prospective buyer.
Appraisers look at homes that have sold, that are listed, and those under contract. Sometimes even looking at properties that have been withdrawn from the market can be useful information.
An appraiser may apply some adjustments to the sales or list prices of these properties to help the reader to compare the properties. The idea of the adjustments is to make the comparable properties more like the subject by adjusting the price of the sale or listing, to the differences between the property being appraised and the properties being used for comparison purposes.
Once this is completed, the appraisal should do more than simply state that the sales are comparable. The appraisal should offer some explanation as to why the sales were utilized and how they are similar. The reader should understand the appraiser’s rationale in using the sales that were utilized and how they developed their final opinion of the market value of the property, which at times can be lengthy.
The story ends with the appraiser’s opinion of the value of the property being appraised. All of the information along the way should have played a role in painting an overall picture of the property being appraised and how it fits into the overall market.
IS IT A LONG STORY OR A SHORT ONE?
The length and detail of the report will depend upon the type of communication the client desires. Currently, there are two types of reporting. There is an appraisal report and a restricted appraisal report. The report will identify which type of report it is. Restricted reports are often used when the client is already aware of the details of the home, and/or doesn’t need to know the details about how the appraiser arrived at their opinion of value. A restricted appraisal report is much shorter in length than an appraisal report. It’s a shorter story.
An appraisal report provides more a much more detailed description of the work completed, including a summary of the scope of work used to develop the appraisal, a summary of the support and rationale for the appraiser’s opinion of the Highest and Best Use of the property, and a summary of the information analyzed and reasoning that supports the analysis, including the reconciliation of the three approaches to value.
Well, there you have it! I hope you enjoyed this tour thru the appraisal reporting process. Many books have been written on the subject. I’ve just shared some quick pics on the subject. I hope you enjoyed it!
I recently had fun talking shop with Bryan Reynolds on the Appraisal Update Podcast. Here it is if you would like to take a listen.
Have a great weekend!
I’ve just released a new episode into the world. I hope you enjoy it!
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Here are some links to other articles I think you might also enjoy…
Everyone Things We’re Crazy – The Voice of Appraisal
Mortgage Rates Impacting Housing – September Newsletter – DW Slater Appraisal Blog
Chuck Norris eats 7% mortgage rates for breakfast – Sacramento Appraisal Blog
How and Why To Check Carbon Monoxide Detectors – APPRAISAL TODAY
What’s Important Now? – The Appraiser’s Advocate Podcast
An Excess of Appraisers? Part III Education – George Dell’s Analog Blog
5 Things to Consider When Getting A Hybrid Appraisal – Birmingham Appraisal Blog
For my readers in the CLE area… here are some articles related to news in our local area that you may enjoy…
A weekend at IngenuityFest: Exploring the age of World’s Fairs – McKenna Reiss of Fresh Water Cleveland
A place to call home: The quest to create safe, affordable housing options – Bob Sandrick of Fresh Water Cleveland