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Appraisal Theory versus Reality

by Administrator on Apr 27, 2016 Narrative Writing 474 Views

Most real property appraisers no matter how new to the industry have read about and understand the three approaches to value and they have read about appraisal theory as presented in appraisal textbooks.  The approaches are not rocket science it takes a couple of semesters in school to cover all of the appraisal theory material including ethics.

If you are one of those individuals who have read or studied appraisal theory you have likely realized that there are a lot of qualifiers associated with the application of any of the "approaches to value."  Appraiser consider how to apply appraisal theory to real world problems every time they accept an assignment.  The decide how to best solve the appraisal problem or problems.  Appraisers generally conclude that the application of the same methodologies with provide credible results, but not always.

How an appraiser decides to solve an appraisal problem often has to do with their decision about the scope of work, thus it’s important for a client or potential client to convey their expectations to an appraiser before they bid on an assignment.  An appraiser may decide how an assignment will be credibly completed using a short summary report but if they clients feels that a more detailed report is necessary that information must be conveyed to the appraiser at the beginning of the process.  There is nothing worse that bidding on an assignment thinking it will take 16 hours and then finding out it will that 40 hours, appraisers can’t survive in the appraisal business working for a fraction of what is reasonable.  

There may be a great deal of appraisal theory related to the appraisal of a specific property type but there may be very little of it that can be applied to a specific appraisal problem.  Appraisers often spend a great deal of time analyzing a property using an appropriate methodology and then find that its application yielded a less than reliable result than they hoped and then they decide to not present the work or give it little or no consideration in their report.  Even an analysis of a vacant parcel of land that usually requires only a sales approach analysis can become extremely difficult to complete if there are few sales.

So appraisal theory is usually easy to understand while it’s application can be difficult.  When the sales comparison approach is the only appropriate approach you may find that given factors like remote location, size, mineral interest or even more challenging factors like aesthetics can turn what appeared simple to quite complex.  When for example you have to hire a professional geologist to analyze underlying mineral value a simple land appraisal becomes complex.

Real properties valued based on their income generally using the income approach can become complex when there is a business entity.  An outdoor advertising (OAD) sign may look like no business is being conducted onsite and thus no business entity is involved yet its valuation is not straight-forward, there is indeed a very specialized business being conducted that cannot be ignored.

Appraisers are often provided with challenging new appraisal problems like valuing; convenience stores, parking ramps, container parks, golf courses, wedding chapels, luxury high-rise condominium buildings, condemnation (eminent domain) taking parcels and recreational properties that require them to understand appraisal theory and decide how best to apply it to real world problems.

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/

Article source: http://www.appraisalarticles.com/Narrative-Report-Writing/4612-Appraisal-Theory-versus-Reality.html

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