Preliminary Analysis: Data Identification, Sourcing, and Assessment Planning

The preliminary analysis is a crucial step in the real estate appraisal process. It establishes the foundation for data❓ collection and analysis. This analysis includes identifying the required data type, potential sources, available resources, and creating a plan and timeline for completing the appraisal task.

Defining Necessary Data:

To define necessary data, the appraiser must fully understand the nature of the real estate problem. Required data can be divided into two main types:

1. General Data: Relates to information about the real estate market in general and includes:

   • Market Trend Data: Information about changes in property prices, interest rates, occupancy rates, and other economic factors affecting the real estate market.
   • Local Supply and Demand Data: Information about the number of properties offered for sale or rent in the area, property turnover rate, vacancy rate, and demand for certain types of properties.

2. Specific Data: Relates to the characteristics of the property being appraised and includes:

   • Physical Data: Information about land area, building area, number of rooms, number of bathrooms, materials used in construction, property condition, and any improvements or modifications made.
   • Legal Data: Information about ownership, restrictions on property use (such as easements and restrictions), easement rights, and any other legal issues that may affect property value.
   • Financial Data: Information about income and expenses related to the property, such as property rents, maintenance costs, taxes, and insurance.

Data Classification by Source:

Data can also be classified by its source into two types:

1. Primary Data: Data collected directly by the appraiser or by other experts working with them. Primary data sources include:

   • Field Inspection: The appraiser inspects the property to collect physical and legal data.
   • Interviews: The appraiser conducts interviews with the owner, real estate brokers, lenders, and government officials to obtain information about the property and the real estate market.

2. Secondary Data: Data obtained from published sources. Secondary data sources include:

   • Public Records: Ownership records, tax records, and building records.
   • Government Agencies: Statistical data on population, income, and employment.
   • Trade Groups: Data on property prices, occupancy rates, and supply and demand.
   • Research Organizations: Studies and research on the real estate market.
   • Real Estate Data Services: These services provide comprehensive data on properties, including ownership information, taxes, sale prices, and permits.

Identifying Data Sources:

After identifying the type of data required, the appraiser must identify potential sources for that data. The appraiser should be aware of the different data sources available and be able to assess the reliability of those sources.

Examples of Data Sources:

• Market Data:
  • Reports from real estate appraisal companies.
  • Reports from banks and financial institutions.
  • Reports from statistical offices.
  • Newspapers and magazines specializing in real estate.
• Property Data:
  • Title deed.
  • Building plans.
  • Lease agreements (if the property is leased).
  • Maintenance and repair invoices.

Identifying Available Resources:

The appraiser should also identify the resources available to complete the appraisal task. Available resources include:

• Time: The appraiser should determine the amount of time available to complete the appraisal task.
• Budget: The appraiser should determine the budget available to cover the costs of data collection and analysis.
• Staff: The appraiser should determine if they have assistant staff to complete the appraisal task, and what their skills and experience are.
• Technology: The appraiser should determine if they have access to the technology needed to complete the appraisal task, such as real estate appraisal software, real estate databases, and statistical analysis tools.

Creating a Plan and Timeline:

After identifying the required data, its sources, and available resources, the appraiser should create a plan and timeline for completing the appraisal task. The plan should include:

1. Task Identification: Identify all tasks that must be completed to accomplish the appraisal task.
2. Responsibility Assignment: Assign responsibility for completing each task.
3. Time Estimation: Estimate the time required to complete each task.
4. Deadline Setting: Set deadlines for completing each task.
5. Budget Allocation: Allocate a budget for each task.

Fee Proposal and Contract:

Based on the preliminary analysis, the appraiser submits a fee proposal to the client. The proposal should clearly state the scope of work, expected fees, and payment terms. After approval of the fee proposal, a contract is signed between the appraiser and the client. The contract should clearly define the rights and responsibilities of each party.

Examples of Factors Affecting Fee Determination:

• Complexity of the appraisal task: Complex appraisals that require in-depth data analysis will be more expensive than routine appraisals.
• Time required to complete the appraisal task: Appraisals that require a lot of time will be more expensive.
• Appraiser experience: Experienced appraisers will charge higher fees than less experienced appraisers.
• Operating costs: The appraiser must cover their operating costs, such as insurance costs, software costs, and travel costs.

Importance of Identifying the Real Estate Problem in the Appraisal Report:

While identifying the real estate problem is the first step in the appraisal process, the information collected for this purpose should be included in the final appraisal report. This ensures transparency and a clear understanding of the appraisal process for the reader.

Summary of Subsequent Steps in the Appraisal Process:

Steps 3 to 8 in the appraisal process will be explored in depth in later chapters. These steps are:

1. Data Collection: Collecting general and specific data from various sources.
2. Data Analysis: Analyzing the data to determine the property’s value.
3. Identifying the Highest and Best Use: Determining the best use of the property from a legal, physical, and financial perspective.
4. Applying Valuation Approaches: Applying different valuation methods (such as the sales comparison approach, the cost approach, and the income approach) to estimate the property’s value.
5. Reconciliation: Reconciling the results obtained from the different valuation methods and determining a final property value.
6. Report Preparation: Preparing the final appraisal report that includes all the information and analyses performed.

Conclusion:

The preliminary analysis is a fundamental step in the real estate appraisal process. By identifying the required data, its sources, available resources, and creating a plan and timeline for completing the appraisal task, the appraiser can ensure the accuracy and reliability of the appraisal.