Step One: Definition of the Problem
- Identification of the real estate and property rights to be valued as well as the use of the appraisal
- Definition of Value is developed as well as the Date of Value Estimate is established.
- Description of the scope of the report is developed as well as information regarding Limiting
Conditions
Step Two: Preliminary Analysis and Data Selection and Collection
- General (Region City and neighborhood): Social, economic, governmental, and environmental
aspects of area.
- Specific (Subject and comparable): Site and improvements, cost and deprecation,
income/expensives and capitalisation rate, history of ownership and use
- Competitive Supply and Demand(Subject Market): Inventory of competitive properties, sales and
listings, vacancies, absorption, demand studies
Step Three: Highest and Best Use Analysis
- Land as though vacant
- Property as improved
- Sometimes HBU is specified in terms of use, time, and market participants.
- Subsequent site/land valuation as needed.
Step Four: Application of the Three Approaches to Value
- Cost Approach: the improvements are theoretically reproduced, subtractions are made for
physical, functional and/or external obsolesce and a site value is added.
- Sales Comparison: Methodically compares the subject property with similar and verified sales
using a detailed grid analysis showing dollar or percentage adjustments with explanations.
Value indicators are weighed to estimate value.
- Income Approach: Verified comparable rentals are analyzed. Vacancy and expense estimates are
made from property history and the market. The Net Operating Income is used with a capitalized
data supported rate and/or a discounted cash flow is developed. A value from these indicators is
estimated.
Step Five: Reconciliation of Value Indicators and Final Value Estimate
Prepared by Robert D. Congdon, Jr. MAI, SRA, using The Appraisal of Real Estate, 13th Edition.
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