What Do Appraisal Clients Want? Part 2
What do appraisal clients need in appraisals?
Their needs are two-fold; service and
quality. Last month I discussed the importance of good customer service
throughout the appraisal development process.
This month let’s talk about some quality basics.
As an appraisal reviewer for over 25 years, I look at
appraisals with an eye toward what is right in the appraisal report. That said, there are certain basics that
should be reflected in every appraisal report.
The goal is to have a well documented, fully supported appraisal. While
this is certainly not a comprehensive list, these are some of key components.
First, (and I can’t believe that I have to
mention this) is that all exhibits in the appraisal and the addenda must be
clear and readable. The resolution on
inserted graphics (charts, DCF’s, maps, graphs, pictures) should be the as
clear as the text. Blurry graphics do
little to support an appraisal opinion.
Almost every appraisal begins with an analysis
of the local economy. While many regard
this as “boilerplate”, the economic analysis sets the foundation for demand
projections later in the appraisal.
Population growth, household growth, job growth, unemployment and major
industries are all key to property performance.
Consider the Intended User of the appraisal. Is the Intended User local with a solid grasp
of the area or a distant institution with little local knowledge? Tailor the
analysis accordingly. Also, make sure
all statistics present the most current data available.
The market analysis should also consider the
Intended User of the appraisal. A local
client may understand the nuances of one office submarket over another but for distant
clients this must be detailed. Still, there are market basics that should
appear in every appraisal. These
How much space is there currently in the market?
Vacancy: How much space is available? Consider indirect space as well.
How much space is the market consuming?
Planned and Proposed Construction: How much space will be added to inventory?
Rental Rate Trends: At what rate are rents increasing or
These statistics should be granulated
from the greater market to the submarket to the micromarket.
Comparables should be recent and relevant. The definition of recent and relevant is
particular to property type and location.
Specialty properties or areas with less active trading may have a wider
data set than basic properties in active markets.
Adjustments should be consistently applied and
reasonable. If there appear to be
excessive adjustments, perhaps it is because the comparable is not really a
The numbers should tie throughout the Income
Approach. The Base Rent Projection
should be pretty close to the total revenues at the bottom of the rent
roll. This is not always the case, but
if not, the variation should be understandable from the text (i.e. a major new
lease has been secured or there is a scheduled lease escalation). The absorption scheduled should be spelled
out. Projected reimbursements should
bear some relationship to historical reimbursements or anticipated base years.
Automated DCF programs generally get the
mathematics correct but they are only as accurate as the data that is
input. Be meticulous about lease
Think about risk in selecting overall capitalization
and yield rates. Do the rates reflect
leasing and economic risks appropriately?
Discuss this thoroughly.
Finally, proof read the appraisal. Enough said.
A well documented and supported appraisal should paint a vivid
picture of the property, the market and the economics. Clients should be able to understand the
appraiser’s perspective without an extensive follow up in the review
Karen Friel, MAI is the 2017 President of the Massachusetts and Rhode Island Chapter of the Appraisal Institute and principal at her firm in Carlisle, MA