Continuation from previous blog:

1. Identify the Intended Users

Make sure the appraiser knows who you want to use the report. If you are looking to buy a property, that might mean you intend to share the appraisal with the seller, your lender (though they will likely obtain their own appraisal) and possibly your local property tax appeal board. These people or parties will be identified in the appraisal report and are the only ones who are authorized to use the report.

2. There Are Three Types of Preports

A "restricted use report" is the shortest and least expensive type but can only be used by the client. Fees can vary based on the size of the property as well as the scope of the appraisal, but a good starting point for a restricted report might be $2000 to $2,500. A "summary report" summarizes the data and analysis and can be used by any intended user and can cost upwards of $3,000. A "self-contained report" contains all of the details of the data and analysis, but is rarely requested. If you tell the appraiser how you intend to use the report, he or she can guide you as to what type of report you will need.

3. The Type of Report Is Separate From the Scope of Work

The amount of work involved in reaching conclusions does not depend on the type of appraisal. With a restricted use or summary appraisal, the appraiser will compile large amounts of information that are retained in a work file but are not included in the report. For this reason, the differences in fees between the various types of reports are less than the amount of information contained in the reports might indicate.

4. Consider the Date of Valuation

Several years ago, a appraisal was done on a nightclub. The weekend after he inspected the property, someone was shot in the club. This introduced stigma that reduced the value of the property. This indicates the importance of establishing the date of valuation. Appraisers can appraise property as of the date of inspection, as of a past date (a "retrospective appraisal") or as of a future date (a "prospective appraisal"). It is important that you establish the correct date of valuation for your needs.

5. Consider the "Property Interest" Appraised

Last but far from least, it's important to tell the appraiser what your interest in the property is. For example, if you want to know what a property is worth free and clear – such as a warehouse you want to move your business into – you are interested in what's called the "fee simple interest." In other words, you simply want to know the value of the building and its property. On the other hand, if you want to know what a property is worth to a landlord when occupied by a particular tenant or tenants, you want a "leased fee interest." Finally, if you want to know what a lease is worth to a tenant, you want a "leasehold interest." This is a common request when people look to buy businesses, as they need to know what the value of the lease is to that business. Be sure to identify which property interest you want appraised.

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Phill Foster and Company, Denver, Colorado

http://www.phillfosterco.com/