Question 1

What is an appraisal?

Accepted Answer

An appraisal is a formal opinion of value intended for specific users, and for which the appraiser assumes responsibility.

Question 2

How long does an appraisal take?

Accepted Answer

A typical commercial appraisal can take between 1 and 2 weeks to complete.  Residential appraisals are generally completed between 1 and 2 days.

Question 3

Why do commercial appraisals take longer than residential?

Accepted Answer

Single-family residential appraisals are typically form reports, while commercial appraisals are comprehensive reports (full narrative).

Form Report: This is likely what you received when you were mortgaging your house. It is a computer-based form with check boxes and space for short descriptions, maps, and photos.

Comprehensive Report: This will be the format the bank is likely to require for financing a commercial property. It is much lengthier, and the opinion of value is presented in a narrative format. Comprehensive Reports are also used in litigation.

Question 4

How much does an appraisal cost?

Accepted Answer

Our fees vary per assignment. Some properties and assignments are more complex, therefore require more research and analysis.
 
The best way to know what an appraisal on your property would cost is to give us a call, or to fill out the information on the Quote tab.

Question 5

How do you determine market value?

Accepted Answer

There are normally three traditional approaches to value; a cost approach, a direct comparison approach, and an income approach.  A value may be estimated from one or more of these approaches as deemed appropriate and then reconciled into a final indication of value.

The cost approach is based on the understanding that market participants relate value to cost. In the cost approach, the value of a property is derived by adding the estimated value of the land to the current cost of constructing a reproduction or replacement for the improvements and subtracting the depreciation amount (deterioration and obsolescence) in the structures from all causes. This approach is particularly useful in valuing new or nearly new improvements and properties that are not frequently exchanged in the market. Cost approach techniques can also be employed to derive information needed in the direct comparison and income approaches to value.  This approach is based on the premise that a purchaser will not pay more than the cost to replace the property.

The direct comparison approach involves comparing the property under appraisal to other, similar properties, which have sold recently.  This approach employs many appraisal principles but primarily emphasizes the principle of substitution, which states that when several similar goods (or properties) are available, the one with the lowest price attracts the greatest demand.  In other words, market value is estimated by the benchmark of recent similar sales (or competing listings).  The direct comparison approach's reliability is lessened when an adequate supply of comparable properties is not available.

The income approach is the present value of the right to receive future benefits. The income approach assumes that a given property is purchased for the amount of revenue it can generate.

The estimation of net income requires extensive market research. The revenue received has to be stabilized to ensure market rents are being received. An appropriate vacancy rate has to be determined, taking into consideration all forms of depreciation and obsolescence. Finally, all expenses have to be considered and deducted from the gross income to determine the net operating income (NOI).  A property's net income can be capitalized into a current, lump-sum value. The NOI, therefore, capitalized into a current, lump-sum value (NOI / cap rate = market value).

The cap rate selection is based on the condition and desirability of the property and economic factors related to the property's location.  A cap rate is a measure of return an investor is willing to accept, given the risk associated with the NOI the property produces.   The formula for calculating a cap rate is (NOI / purchase price = cap rate).  An investor will require a higher return (cap rate) for a riskier income-producing property.  Inversely, an investor will require a lower return for a less risky property.

Question 6

What is an insurance appraisal?

Accepted Answer

An insurance appraisal is a professional assessment of the value of a property or real-estate for insurance purposes. This appraisal estimates the replacement cost of your property in the event of damage or loss. GCH Appraisals specializes in providing accurate and reliable insurance appraisals for all property types (residential, multi-family, commercial, institutional,  industrial, etc.).

Our experienced team of appraisers conducts thorough evaluations to determine the replacement cost of the property, taking into account factors such as the location, size, condition, and unique features of the property.  Cost data come from local contractors, Core Logic (Marshall & Swift), and other sources, such as the yearly Altus Cost Guide.

Question 7

What is the difference between Replacement Cost and Reproduction Cost?

Accepted Answer

Replacement Cost
“The estimated cost to construct, as of the effective appraisal date, a substitute for the building being appraised using contemporary materials, standards, design, and layout.  When this cost basis is used, some existing obsolescence in the property may be cured. Replacement costs may be the only alternative if reproduction costs cannot be estimated.”

This approach is commonly used in insurance appraisals to determine the amount of coverage needed to rebuild a property in the event of a disaster.

Reproduction Cost
“The estimated cost to construct, as of the effective appraisal date, an exact duplicate or replica of the building being appraised, insofar as possible, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescence of the subject improvements.”

This method is often utilized in historic preservation or restoration projects. Also, appraisals concerning brand new builds often require cost estimates using the reproduction method.