Data Acquisition and Preliminary Analysis: A Step Towards Assessment.

data❓ Collection and Preliminary Analysis

• Data collection and preliminary analysis are crucial for real estate appraisal.
• This process involves organizing and analyzing data to identify trends and assess their impact on property value.

Defining the Appraisal Problem:

• Clearly define the appraisal problem by:
  • Identifying the real estate (location, legal description).
  • Identifying the real property interest (ownership type).
  • Identifying the purpose of the appraisal (sale, purchase, mortgage, insurance, etc.).
  • Identifying the effective date of the appraisal.
  • Identifying the standard of value (market value, insurable value, investment value, etc.).
  • Identifying assumptions and limiting conditions that affect the appraisal process (legal restrictions, lack of information, unstable economic conditions).

Preliminary Analysis:

• The preliminary analysis aims to:
  • Identify necessary data, which can be categorized into:
    • General Data: Related to the real estate market, including economic data (interest rates, inflation, unemployment, economic growth), demographic data (population growth, demographics, average income), and real estate data (property prices, transaction volume, rental rates, vacancy rates).
    • Specific Data: Related to the subject property and comparable properties, including data on the subject property (location, area, building age, building condition, number of rooms, finishes, facilities) and data on comparable properties (sale prices, sale conditions, location, area, building age, building condition).
    • Competitive Supply and Demand Data: Information about the future supply and demand for similar properties in the market.
  • Identify data sources, which can be categorized into:
    • Primary Data: Collected directly by the appraiser❓ through field inspection, interviews with owners/agents/locals, and surveys.
    • Secondary Data: Obtained from published sources such as public records (ownership records, tax records, building records), real estate databases, economic reports, and professional publications.
  • Prepare a work schedule: Defining tasks and time needed.

Data Collection:

• Verify the accuracy of the data collected through personal inspection and cross-checking between different sources.
• Ensure all data used is relevant to the property’s value.

Analyzing Highest and Best Use:

• Determine the highest and best use of the property as improved and as vacant.
• Highest and best use is the most probable use of the property that results in the highest value, provided the use is legally permissible, physically possible, and financially justifiable.

Valuing the Site:

• Site valuation may be necessary for highest and best use analysis, applying valuation methods, or as required.
• A site is land prepared for use or construction, such as leveling and providing access and utilities.

Applying the Three Approaches to Value:

• Sales Comparison Approach: Indicates value by analyzing sales of comparable properties. More similar comparables are more reliable. Sales prices of comparable properties must be adjusted for differences.
  • V = SP + A1 + A2 + ... + An
    • V = Estimated value of the subject property.
    • SP = Sale price of the comparable property.
    • A1, A2, ..., An = Adjustments to the sale price of the comparable property (positive or negative).
• Cost Approach: Indicates value by estimating land value separately, adding the estimated cost of improvements, and subtracting depreciation. Older improvements make depreciation estimation more difficult and the value indication less reliable.
• Income Approach: Uses Gross Rent Multiplier (GRM) for residential properties.
  • GRM = Value / Gross Rental Income
  • Value = GRM * Gross Rental Income

Reconciling the Value Indicators:

• Reconcile differences between values indicated by the three approaches by analyzing the reliability of value indicators and applying judgment.

Reporting the Value Estimate:

• Prepare an appraisal report including all data used, analytical methods applied, and conclusions reached.
• The report must include all elements required by USPAP (Uniform Standards of Professional Appraisal Practice).