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I guess that I have inadvertently been drawn into the international appraisal world by accepting an assignment to review appraisal reports completed in India on real properties located in India. I have never been to India, but I am not reviewing the accuracy of the market data used in the reports. I'm looking at how the reports deal with basic appraisal concepts, and suggesting how they can best be revised or changed to address USPAP 2016-2017 requirements.
So far I have seen some important appraisal keywords and concepts used in appraisal reports from India like "fair market value" but the terms are used without their definitions included as required in the U.S. by USPAP. If you don’t detail a “fair market value” definition you may find that it has many different meanings. I was also struck by the fact that there was no discussion in the reports about basic appraisal theory and process. Nothing was in the appraisal reports about the three (3) approaches to value, scope of work, intended use, ethics and many other area detail in USPAP. Of course none of those requirements exist.
There is an assumption made by many appraisers when they write a report that the reader of our appraisal report will be someone who is familiar with the local real estate market. When someone from another country reads it they can however be lost with regard to things like physical features. I found insufficient discussion regarding physical features, no neighborhood photos, no subject photographs, no comparable sales photographs and no drawings. I’m used to providing that information as part of my reports but it appears that it’s not part of a typical report completed in India, or at least not based on those that I have seen.
I was also surprised to find that no highest and best use analysis was included in the Indian appraisal reports that I reviewed. It's a fact that most residential appraisal reports completed in this country don't have an appraiser developed highest and best use analysis in them. It's simply because in most cases the residential improvements being appraised are contributory so the forms include the highest and best use analysis in the "boilerplate" so appraisers do not have to discuss the analysis.
The appraisals that I reviewed were not however typical single-family residential reports, they concluded a higher value or an equal value for the subject properties "as vacant" when compared to "as improved," but highest and best use analyses were amazingly not developed. Again in the U.S. a highest and best use analysis is expected, especially when it’s not the “as improved” use.
Another obvious omission in the appraisal reports written in India was their lack of a discussion or explanation of the abbreviations used in the report. Since reports are not generally written for readers in other countries most appraiser see no need for a discuss of terms. As an out of country reader however I need to know what a term like INR means, yes it’s “in Rupees.”
Real estate sales information is not shared in India, it's less transparent there than trying to find data in non-disclosure states like Michigan here in the U.S. because there is almost always "black money" that is part of a real estate deal in India and the amount of that invisible money that changes hands varies as a percentage of each deal. So appraisers are stuck with developing their market value opinions based on asking prices and discussions with broker reports on negotiated asking prices. They are not based on the actual confirmed sales prices that appraisers so desperately seek because that information is simply not available.
Appraisers in the U.S. have great data sources including Marshall & Swift cost manuals that provide depreciation rates for buildings over time based on their effective age. The reports from India included opinions regarding depreciation yet there was no source material to refer to, simply because it does not exist.
It's not easy to analyze an appraisal report from another country like India but if the purpose of the review is to transition it for use in the U.S. then who better to review it than someone who writes reports all day every day?
Update: Of course my "review" is an English translation so the original may have included some of the omissions that I have discussed.
For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/
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