The Appraiser's Approach

Corporate Finance/Restructuring | CCIM Institute (Reprint)

May 15, 2014

In light of the current economic conditions, valuing real estate has become more complicated, and more attention is being paid to the appraisal process and the appraiser’s opinion of value. Prior to the economic downturn, the volume of transactions made valuing real estate a more transparent process; however, that has changed and recent media reports portray appraisers as purported deal killers.

Buyers, sellers, investors, and brokers, although market participants, do not have the same third-party obligations to support their positions with factual market evidence. The price established by the participants in a single transaction has to be supported by other market evidence in order to be reflective of a market value. Members of the Appraisal Institute and certified appraisers are trained to define the valuation problem, develop a work plan, and collect and analyze the relevant data to arrive at a well-reasoned value opinion. Equipped with knowledge and skill, appraisers apply their judgment to best advise the user of an appraisal with a value opinion that best reflects today’s economic reality.

A comprehensive market analysis is an essential part of the appraisal process and is necessary to render a well-founded opinion of value. The process starts with an understanding of the property’s use or potential use, which creates its value. Armed with that knowledge, the appraiser can form judgments about how a property fits the needs of owners and users in a particular market.

Looking outside the subject property, it is the appraiser’s job to research and understand, on macro- and micro-economic levels, supply and demand parameters as they can impact a specific property. This economic insight forms the basis of the highest and best use conclusion, which is a critical part of every appraisal.

Relying on the Appraisal Institute’s body of knowledge and adequate due diligence, appraisers should bring to each assignment a clear understanding of the potential users/buyers of the property and the likely demand for that property.


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