The Appraisal Process

Today is the age of specialization and the real estate profession is no exception to the rule. Real estate appraising is a complex field. The sale of your home, business or any "real property" may be the largest transaction of your lifetime. Appraisers' opinions can play an important part in almost any real estate transaction for this reason a NAIFA Independent Appraiser should be consulted.

What Is An Appraisal?

An appraisal is an opinion of value or the act or process of estimating value. This opinion or estimate is derived by using the three common approaches, all derived from the market. They are:

1. Cost Approach to value is what it would cost to replace or reproduce the improvements as of the date of the appraisal, less the Physical Deterioration, the Functional Obsolescence and the Economic Obsolescence. The remainder is added to the Land Value.
2. Comparison Approach to value makes use of other "bench mark" properties of similar size, quality and location that have recently sold. A comparison is made to the subject property.
3. Income Approach to value is of primary importance in ascertaining the value of income producing properties, has little weight in residential type properties. This approach provides an objective estimate of what a prudent investor would pay based upon the net income the property produces.

How To Choose An Appraiser

Before engaging the services of an appraiser, it is advisable to thoroughly check the qualifications of the appraiser. The National Association of Independent Fee Appraisers conducts a professionally recognized testing and certifying program, so, you can rest assured when you chose an appraiser from NAIFA's on-line Appraiser Directory!

NAIFA was founded in 1961 as a non profit professional association of real estate appraisers. Today, the Association has chapters through­out the United States, Canada, & Mexico.....and continues to grow both in number and in stature.

The Association's objectives are to raise the standards of the appraisal profession, gain recognition for its' members as qualified professionals, and to promote fellowship among appraisers. These objectives, professionally recognized testing, and a certifying program, affords reasonable assurance to the general public of the professional expertise, integrity, and responsibility of the NAIFA members.

NAIFA's Professional Designations include four member categories:

• Member, IFA Designation
• Member/Agriculture, IFAA Designation
• Senior Member, IFAS Designation
• Appraiser/Counselor, IFAC Designation

MEMBER [IFA] Must join the Association as a Candidate, pass a written examination and submit a narrative appraisal report meeting the Association's requirements. The report must be approved by the National Education Committee and the Candidate must also meet the educational and appraisal experience requirements outlined by the Association.

MEMBER/AGRICULTURE [IFAA] Must join the Association as a Candidate or be a Member [IFA] and meet minimum experience requirements for Senior Member [IFAS], successfully pass the IFAA comprehensive examination, submit a narrative demonstration report on an agricultural property conforming with prescribed guidelines and also meet appraisal educational and experience requirements as outlined by the Association.

SENIOR MEMBER [IFAS] Must join as a Candidate and first meet the requirements for the Member [IFA] or be a Member [IFA], successfully pass the Senior Member Examination, submit a narrative demonstration report on an income producing property conforming with prescribed guidelines and meet educational and experience requirements as outlined by the Association.

APPRAISER/COUNSELOR [IFAC] An Appraiser/Counselor must have been a Senior Member [IFAS] for three [3] years and have five [5] years experience in counseling prior to submitting a thesis of an actual counseling experience. The thesis must be approved by the National Education Committee with final approval of the Appraiser/Counselor by the National Board of Directors. The Appraiser/Counselor with IFAC designation is the Association's highest recognition of proficiency.

How You May Help

Once you have selected an appraiser, be prepared to answer the following questions or have as much information as possible:

1. Purpose of the appraisal.
2. The required completion date of the appraisal.
3. Provide a copy of deed, survey, purchase agreement or other pertinent papers pertaining to the property.
4. Is there a mortgage? If so, with whom, when placed, for how much, type of mortgage [ FHA, VA etc.], interest rate, and any other types of financing?
5. Copy of current real estate tax bill, statement of special assessments, balance owing and on what [sewer, water, etc.].
6. Is property listed for sale and if so, for how much and with whom?
7. What personal property is included?
8. If this is an income­ producing property, you must have a breakdown of income and expenses for the last year or two and a copy of leases.

Code Of Ethics

National Association of Independent Fee Appraisers [NAIFA] is organized for a full and free interchange of ideas between appraisers whose responsibility to their clients is on a direct freely negotiated basis. It is organized so that the public when seeking an appraiser may obtain the service of a qualified Independent Fee Appraiser.

8.1 PROFESSONAL CONDUCT: A member shall conduct himself/herself at all times in a manner beneficial to the Association and to the community.

8.2 FEES: No appraisal fees may be contingent upon the valuation of an appraisal. All fees for trial testimony must be determined prior to the trial. No fees may be split without the consent of all interested parties.

8.3 APPRAISAL REPORTS: Each appraisal must contain the following items in addition to all pertinent information known to the appraiser at the time of the appraisal:

• A. A statement as to purpose and/or objective of the appraisal, with value defined.
• B. A legal description and/or adequate identification of the property appraised.
• C. The date of the value estimate, the date at which the value estimate applies.
• D. An adequate description of the physical characteristics of the property appraised.
• E. A statement as to the known and/or observed encumbrances, if applicable.
• F. A statement and analysis of the highest and best use of the property appraised, if appropriate.
• G. A statement as to the property rights appraised.
• H. A direct sales comparison approach and analysis, if applicable.
• I. A cost approach and analysis, if applicable.
• J. An income approach and analysis, if applicable.
• K. A statement as to the conclusions reached in the appraisal report.
• L. Documentation requirements [the appraiser must have the minimum data requirements in his/her file to properly support the final estimate of value].
• M. A statement as to the assumption and limiting conditions affecting the appraisal.
• N. The signature of the responsible appraiser together with his/her particular designation [IFA, IFAA, IFAS, IFAC].
• O. A statement concerning the maintenance of confidentiality regarding the appraisal assignment and results thereof.
• P. Designated members [IFA, IFAA, IFAS, IFAC] must disclose their continuing education status clearly in every appraisal report.

8.4 VALUE REPORTS. Appraisal reports must not include:

• A. Improbable and non supportable premises.
• B. Vague assumptions unsupported by fact.
• C. Improbable highest and best use.

8.5 CERTIFICATION STATEMENT. The certification of each appraisal must contain the statement: "This appraisal has been prepared in conformity with the Code of Ethics of the National Association of Independent Fee Appraisers, and the Uniform Standards of Professional Appraisal Practice as promulgated by the Appraisal Foundation." On printed forms supplied or required by client, the appraiser is bound by the above code and certification even though the statement is not contained therein.

8.6 PROFESSIONAL PRACTICE. It is unethical for an appraiser to do the following:

• A. Conduct himself/herself in any manner which will prejudice his/her professional status or the reputation of any appraisal organization with which he/she is connected.
• B. Compete unfairly with other appraisers.
• C. Injure by falsification or by malice, directly or indirectly, the professional reputation, prospects or business of any other appraiser.
• D. Fail to report to the Association the actions of any member who, in the opinion of the reporting member, has violated this code of ethics.
• E. Advertise or solicit appraisal business in any manner not consonant with accepted professional practice.
• F. Reveal in any way the substance of any appraisal without permission of the client or due process of law.
• G. Issue a separate appraisal report when another appraiser assigned to appraise the property has had a part in the formation of the opinion of value.
• H. Issue an appraisal report on only a part of a whole property without stating that it is a fractional appraisal; and, as such, subject to use in a manner consistent with such limitations.
• I. Accept an assignment to appraise a property of a type with which he/she has had no previous experience unless in making the appraisal, he/she associates himself/herself with an appraiser who has had experience with the type of property being appraised; or, makes full disclosure of the degree of his/her experience, background and training to his/her client.
• J. Appraise knowingly, a property which is subject to existing leases, encumbrances or other specific factors without disclosing the effects thereof upon the value of the property.
• K. Appraise property in which the appraiser has an interest without that interest being fully disclosed.
• L. Contract for or accept compensation for appraisal or analysis services in the form of a commission, rebate, division of brokerage commissions, or any similar form.
• M. Receive or pay any finders or referral fees.