KO Appraisal
Guide

How to read an appraisal report

An appraisal report is long, and most of the length is disclosure rather than analysis. Knowing which sections carry the reasoning, and which are boilerplate, lets you review one properly in a few minutes and tell whether the conclusion is actually supported.

Check the assignment terms first

Before the value, confirm the report answers the question you needed answered. This is where reports most often turn out to be unusable, and it takes thirty seconds.

  • Intended use and intended user. A report prepared for a lender is not addressed to you, and using it for another purpose is outside what the appraiser agreed to.
  • Effective date. The date the value applies to. For estate work it should be the date of death; for divorce, the date the court has set. A report with the wrong effective date answers the wrong question no matter how good the analysis.
  • Standard of value. Market value, fair market value, investment value, and liquidation value are different definitions producing different numbers.
  • Scope of work. What the appraiser did and did not do. Whether the interior was inspected, what was verified, what was relied on from others.
  • Extraordinary assumptions and hypothetical conditions. These change what the value means. An assumption that permits exist, or a hypothetical condition that a building is complete when it is not, must be stated, and if one is central, the value is conditional on it.

Where the real analysis is

Three sections carry the weight, and a report can be judged on them:

  • Highest and best use. Should be a reasoned conclusion, not a sentence asserting that the current use is the highest and best. Where a property is at an interim use, this section determines whether the rest of the analysis is even pointed at the right question.
  • The comparable adjustment grid. The heart of the sales comparison approach. Look at how much adjustment each comparable required. Heavy adjustments mean the comparables were not very comparable. Look for adjustments in the same category running in opposite directions across sales, which suggests they are not market-derived.
  • Reconciliation. Should explain which approach governed and why. If it simply averages the indications, the appraiser has avoided the judgement the report exists to make.

Report types, and what each permits

USPAP provides for different report options, and the difference is what may be disclosed rather than how much work was done. An appraisal report sets out the analysis in enough detail for the intended user to understand it. A restricted appraisal report contains minimal detail and, the critical point, is restricted to a single client, with no other intended users permitted.

That restriction is what catches people out. A restricted report cannot be given to a court, an appeals board, the IRS, or a counterparty, because nobody but the client is permitted to rely on it. If a report may need to be shown to anyone else, it must be commissioned as a full report from the start. The format is fixed at engagement, not afterwards.

Signs of a weak report

Not every problem is visible without expertise, but several are:

  • Comparables far from the subject, or much older than the market would justify, without explanation.
  • Large adjustments with no stated basis. An adjustment is a market-derived figure; if the report cannot say where it came from, it is an assertion.
  • A reconciliation that averages rather than weighs.
  • Boilerplate that does not match the property: descriptions of features it lacks, or a highest and best use paragraph that could apply to anything.
  • An effective date or intended use that does not match what was ordered.
  • Photographs or data inconsistent with the written description.

Common questions

What is a restricted appraisal report?
A report option under USPAP containing minimal detail, permitted only where there is a single client and no other intended users. The analysis behind it may be thorough, but the report itself does not set it out, and nobody other than the client may rely on it.
When can a restricted appraisal report be used?
Where the client is the only party who will rely on the value and needs no documentation to show anyone else. An internal decision, or a preliminary look before committing to a transaction. It is not appropriate where a court, an appeals board, the IRS, or a lender will see it.
Who gets the appraisal report first?
The client. In a mortgage transaction that is the lender, which receives and reviews it before the borrower sees it. Federal rules entitle a residential mortgage applicant to a copy, generally before closing.
What is a Uniform Residential Appraisal Report?
The standard form used for most residential mortgage lending. A structured format with defined fields for property description, comparables, adjustments, and the value conclusion. Its uniformity is the point: it lets lenders and reviewers find the same information in the same place every time.
Can I challenge something in the report?
You can identify factual errors and supply information the appraiser did not have. A permit, a recent comparable sale, a correction to square footage. What you cannot do is dispute the conclusion because it is inconvenient. In a lending transaction the request goes through the lender, since appraisal independence rules govern who may contact the appraiser.
Who wrote this Kevin O'Brien, MAI, SRA. California Certified General Real Estate Appraiser #3005065, issued by the California Bureau of Real Estate Appraisers (BREA). Practicing in San Diego. This page reflects how these assignments are actually handled, not a summary of other people's summaries.
Where this applies Appraiser licensing is state-specific, there is no national appraisal licence, so appraisal engagements here are California properties, primarily San Diego County. The valuation methodology and the federal tax rules described above apply anywhere in the United States; if your property is in another state, you need an appraiser credentialed there, and this page should still tell you what to ask them for.

Related reading

Next step

Tell me about the property.

Most assignments start with a short call, property type, the purpose of the appraisal, and the deadline you are working against. You get a fixed quote before any engagement, never contingent on the value reached.

Typical commercial fees range $2,000–$4,000. Residential and simpler assignments quote lower. Every engagement is quoted in advance, so the figure is known before work begins.

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