What’s IN an Appraisal Report? A Full Overview of Key Components

Last updated on March 27th, 2024 at 12:33 pm

Many people assume an appraisal includes a brief comparison of your property to others in the area. However, there’s a bit more that goes in to completing a full report. We’ll go through section by section and discover exactly what’s in an appraisal report.

In fact, a complete appraisal report, comprising around 30 (or more) pages, is the result of hours of preparation and research, and includes several analyzed factors. These include the property’s condition, quality, structural integrity, renovations or updates, environmental considerations, neighborhood features, market trends, and more.

Let’s go through a typical appraisal report so you can understand which information is analyzed and included.

(The appraisal report described reflects a typical single-family report intended for mortgage lending purposes. Report components will vary based on the purpose and scope of work needed.)

The first section of a real estate appraisal includes essential information to properly identify the subject property.

This includes the property’s address, legal description, and tax identification number, along with the purpose of the appraisal, the intended users, owner’s name, etc.

This section sets the stage for a comprehensive report by clearly understanding the property in question and who it’s intended for.

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In the “neighborhood” section of a real estate appraisal, we provide an in-depth description of the neighborhood and surroundings in which the subject property is located.

• Neighborhood Boundaries: Clear definition of the neighborhood’s boundaries, which may include streets, natural landmarks, or other defining factors. The “neighborhood” is defined as a specific, identifiable geographic area or community that shares similar characteristics and influences property values”.
• Economic Factors: Examination of the neighborhood’s economic stability and trends, including employment opportunities, income levels, and any industries or businesses that influence the local economy.

• Housing Market Trends: An assessment of the local housing market, including factors like property values, sales trends, and supply and demand dynamics.

• Amenities and Services: This section may include an overview of nearby amenities, services, and infrastructure, such as schools, parks, shopping centers, public transportation, and healthcare facilities.

• Zoning and Land Use: Information on zoning regulations, land use restrictions, and any future developments or changes that may affect the neighborhood’s character.

• Market Conditions: Insights into the current real estate market conditions, including factors like inventory levels, days on the market, and any recent sales or listings in the area.

• Local Trends: Identification of any emerging trends or developments in the neighborhood that could impact property values in the future.

This section helps appraisers and readers of the report gain a full understanding of the subject’s location and its position within the broader community, which is a crucial part of determining its value.

This section focuses on the evaluation of the land on which it is situated.

• Site Description: A detailed description of the subject’s lot, including its size, shape, topography, and any unique features such as waterfrontage, woods, streams, etc.

• Zoning and Land Use Regulations: Information on local zoning regulations and land use restrictions that affect the property, including any limitations on how the land can be developed or used.

• Accessibility: Assessment of the property’s accessibility, including its proximity to roads, highways, public transportation, and other modes of access.

• Utilities and Infrastructure: An examination of the availability and condition of essential utilities, such as water, sewer, electricity, and gas, as well as any special assessments or fees related to infrastructure.

• Environmental Factors: Identification of any environmental factors that could impact the property, such as flood zones, soil conditions, and potential hazards.

• Legal Restrictions: Evaluation of any legal restrictions or easements that affect the property, including rights of way or encumbrances.

• View and Orientation: Consideration of the property’s orientation, views, and how they might influence its desirability and value.

• Site Improvements: Description of any site improvements, such as driveways, sidewalks, fences, pools, or outbuildings.

• Site Size and Dimensions: Measurement and documentation of the property’s size and dimensions, as well as any irregularities or constraints that might impact its use.

• Highest and Best Use: Analysis of the property’s highest and best use, which considers its current use and potential uses, and how these affect its value.

The site analysis provides an essential foundation for understanding how the property functions within a physical and regulatory context.

The improvements section of a real estate appraisal report focuses on an evaluation of the components within the interior and exterior of the subject property.

• Building Description: Detailed information about the primary structure on the property, including its architectural style, size, and overall quality.

• Building Condition: An assessment of the condition of the building, which may include notes on any visible defects, needed repairs, or maintenance issues.

• Year Built: The year in which the main structure was constructed, which is essential for assessing the property’s age and potential historical significance.

• Renovations and Upgrades: Documentation of any improvements or modifications made to the property, such as renovations, additions, or significant upgrades.

• Square Footage: Living areas of the interior and exterior living space, including any detached structures like garages or sheds. The square footage is used to estimate the property’s size, which can impact value significantly.

• Room Count and Layout: A description of the number of rooms, their purpose, and the overall layout of the property and its functionality.

• Fixtures and Finishes: Information about fixtures, finishes, and features within the property, such as flooring, countertops, cabinetry, and appliances.

• Systems and Utilities: Description of essential systems, including HVAC, plumbing, electrical, and any other utilities, along with their condition.

The improvements section provides a comprehensive view of the subject’s components and their condition, enabling the appraiser to make informed judgments when comparing your property to others.

The sales comparison grid section of an appraisal includes a comparison of similar homes that have sold recently and how they compare to the subject.

Various adjustments are made to reflect negative or positive features of the subject in comparison to these properties.

• A Grid of Properties Deemed Most Comparable: A list of recently sold properties that are similar to the subject property in terms of location, size, and other relevant characteristics.

• Property Details: Details about each comparable property, including its address, style or design, number of bedrooms and bathrooms, square footage, and any additional amenities. (Decks, porches, pools, etc.)

• Sale Price: The sale price of each comparable property, which is a crucial factor in determining an estimated value range for the subject property.

• Date of Sale: The date on which each comparable property was sold, as this can reflect which market activity is the most recent. Appraisers generally rely more heavily on more recent transactions.

• Adjustments: Any necessary adjustments made to the sale prices of the comparable properties to account for differences between them and the subject property.

• Adjusted Sale Price: The sale price of each comparable property after adjustments have been made, which provides a range of where your home’s value should fall.

• Price Per Square Foot: The price per square foot of each comparable property, which is one factor considered to assess the subject property’s value based on its size.

• Comments and Notes: Additional comments or notes about the comparable properties or specific considerations that were taken into account during the appraisal process.

The Sales Comparison grid is typically one of the primary tools used in determining the final value for most appraisal types, as it most accurately reflects the most recent market activity within a specific area.

The cost approach section of a real estate appraisal involves estimating the value of a property by considering the cost of replacing or reproducing it to a comparable state of quality and condition.

• Reproduction Cost: This involves determining the cost of building a replica of the subject property with the same materials and workmanship. This estimate considers the cost of labor, materials, and associated expenses.

• Depreciation: Any reductions in the property’s value due to factors like wear and tear, obsolescence, or functional issues are assessed as depreciation.

• Land Value: The value of the land on which the property stands is determined separately from the cost of construction. This can be calculated based on market data or by extracting the land’s value from other data.

• Site Improvements: Any improvements to the land, such as landscaping, driveways, or utilities, are considered when assessing the overall value.

• Final Estimate: The sum of the land value, cost of construction (reproduction cost), less any calculated depreciation, plus any site improvements = an estimate of the property’s current value using the cost approach.

The cost approach is especially useful for new or unique homes where comparable sales may be limited. It helps determine the value of the property based on the cost of creating a similar one, considering depreciation and other factors.

The cost approach is not generally considered the most reliable for older homes, as estimating the cost of reconstructing with similar materials is difficult as more time goes by.

Accurate calculations for depreciation can be more subjective or difficult to estimate accurately.

Supporting documentation in an appraisal provides evidence and additional context to support the appraiser’s conclusions.

• Maps: Maps can show the location of the subject property, its proximity to amenities, and relevant geographical features. They assist the user in understanding the property’s surroundings.

• Sketch: Property sketches or floor plans illustrate the room layout and living areas of the subject property, helping to visualize its structure and functionality.

• Surveys: Property surveys provide detailed information about property boundaries, dimensions, and legal descriptions, ensuring accuracy in property identification.

• Photographs: Photographs of the subject property, as well as comparable properties, are included to document their condition, features, and any visible issues affecting value. Lenders hope to see photos of properties that appear to be comparable to the subject in style or design as well as condition.

Lenders often require the inclusion of interior photos as part of a completed report.

Appraisers must adhere to strict confidentiality rules regarding the use of private photos. DO NOT be alarmed if the appraiser needs to take photos inside the property.

Photos of living areas, bedrooms, baths, crawlspaces, attics, and the interior of garages or sheds are often required by lenders.

Contents of the report (photos included) are fully confidential.

RELATED: ARE APPRAISALS CONFIDENTIAL?

It’s a good idea to make sure these areas are fully accessible at the time of the appraisal inspection.

• Legal Documents: Documents such as deeds, titles, and property records are used to confirm ownership, legal descriptions, and any encumbrances or restrictions on the property.

• Market Data: Relevant information on recent property sales, listings, and market trends, helps support the appraiser’s analysis and conclusions.

• Contracts and Agreements: Contracts related to the property, such as leases, rental agreements, or purchase contracts, are sometimes included to demonstrate the circumstances of the transaction or other factors impacting the agreed-upon price.

• Zoning and Land Use Documents: Information on zoning regulations and land use restrictions can impact the property’s value and potential uses. These may be included in certain situations.

• Environmental Reports: Reports related to environmental conditions, such as soil reports, hazardous material assessments, or flood zone determinations, can become relevant for understanding potential environmental impacts on value.

• Cost Estimates: Detailed cost estimates for construction, repairs, or renovations are valuable in the cost approach to property valuation.

• Inspection Reports: Reports from property inspections, which may include structural, pest, or building condition assessments, provide insights into the property’s physical condition as it’s reported by the appraiser.

Appraisers use these additional documents and others as necessary to support their analysis and conclusions, ensuring a credible report and confirmation that the data is accurately supported.

The Final Reconciliation of Value in the appraisal report is the concluding section where the appraiser combines the results of the different valuation approaches to arrive at a final estimated market value for the subject.

This portion includes the specific estimate (or sometimes range) of the property’s value, considering all relevant factors and approaches used in the appraisal process.

An explanation is given, summarizing the rationale behind the final value determination.

The weight of different approaches to value is discussed, as well as the reasoning behind why certain approaches, or possibly certain sales (comps), were more heavily relied upon than others.

The full process involves a comprehensive analysis of all the factors noted, resulting in a final value opinion that is well-supported and deemed credible by both the appraiser and lender.

Although certain aspects of the appraisal report are subjective, there is a thorough and systematic process that must be completed before reaching a final conclusion. The appraisal plays an important role in the home buying process – make sure yours is completed by a professional!