Real Estate Appraisal Scope of Work and The Appraiser’s Data Request

By James R. MacCrate, MAI, CRE, ASA

Introduction

The valuation of real property interests is an orderly process that has been developed over the years to produce credible results. This process defines the problem and the scope of work that is necessary to develop an opinion of value for the intended users of the report for a specific function, i.e., such as estate tax planning, to obtain a mortgage loan, to protest the real estate tax assessment, etc. The Scope of Work is so important that the Uniform Standards of Professional Appraisal Practice (USPAP) has included an entire section describing this rule.

Scope of Work Rule

Scope of Work is defined by Uniform Standards of Professional Appraisal Practice (USPAP) as “the type and extent of research and analyses in an assignment.” Scope of Work Rule states that an appraiser must for each appraisal, appraisal review, and appraisal consulting assignment: identify the problem to be solved; determine and perform the scope of work necessary to develop credible assignment results; and disclose the scope of work in the report. An appraiser must collect and analyze information about the subject property, the real estate market and competitive sales and leases that are necessary to properly develop the appraisal, appraisal review or appraisal consulting assignment. This includes gathering adequate information about the subject property. Usually, real estate appraisers develop a data request list or “wish list” of information about the subject property that is required to properly produce reliable conclusions. It is extremely important that property owners do not withhold critical information. Doing so can produce conclusions that are misleading and erroneous.

Data Required

The Real Estate Valuation/Advisory Services Group at the “OLD” Price Waterhouse LLP, led by Roger J. Grabowski, ASA and Richard D. Wincott, MAI, developed data request lists that were submitted to the property owners before the appraisal process would be begin. This information is absolutely critical in order to produce credible and reliable assignment results. Some of the information that a real property appraiser might request includes, but is not limited to, the following:

  1. Contact name and phone number of property manager, leasing agent, and appropriate person to arrange for the property inspection.
  2. Date of valuation.
  3. Access to building plans and specifications.
  4. Plot plans or survey for the property.
  5. Legal descriptions.
  6. Copy of current title insurance policy, if available.
  7. Deed restrictions, covenants, easements.
  8. Five-year ownership history.
  9. Three-year history of assessments and taxes, including assessor’s real estate tax ID numbers.
  10. Copies of all ground leases, if applicable (abstracts/summaries acceptable, if in sufficient detail).
  11. Access to copies of all leases.
  12. Current rent roll by tenant and lease abstracts.
  13. Blank copy of standard tenant lease agreement.
  14. Copies of most recent tenant billings, showing calculation of pass-through billings.
  15. Three-year occupancy history detailing tenant retention rate and down time between leases.
  16. Summary of tenant improvement allowances granted to existing tenants within the last three years.
  17. Floor plans delineating tenant spaces.
  18. Engineering reports for five years preceding the valuation date, if any (i.e., hazardous materials, assessments and physical condition survey).
  19. Detailed scope and cost of recent (5 years) and prospective capital improvements (3 years) or repairs.
  20. Detailed annual income and expense statements and tax returns for the last five years.
  21. Year-to-date operating statements.
  22. Annual budget for current year and proposed budget, if available.
  23. Copies of management or leasing agreements (abstracts/summaries acceptable, if in sufficient detail).
  24. Summary of offers to purchase/lease and/or current listings for sale/lease, if any, within the last five years.
  25. Any “unusual” conditions that should be considered in the appraiser’s analysis.
  26. Copies of any appraisal reports, market studies, tenant profiles, or marketing plans completed within the last five years.
  27. Comparable leases and building sales that the owner has access to.

The owner of the property knows the property extremely well and the appraiser is just learning about the property. This property specific information improves the learning curve of the appraiser and saves time, and possibly lowers the cost of the appraisal on income-producing property. If the real estate appraiser has this information before the property is inspected it provides the appraiser with insight about the property and specific property issues that may be addressed during the inspection. This information provides the real estate appraiser with the major economic and physical factors of the property being appraised that are major determinants of value.

Conclusion and Credible Assignment Results

An appraiser must not allow assignment conditions to limit the scope of work to such a degree that the assignment results are not credible in the context of the intended use. If the appraiser does not obtain this information, the scope of work is limited. If the financial institution, mortgage broker, real estate broker, and the lawyer do not provide this information to real estate appraisers prior to the start of the assignment, the final conclusions may not be credible and reliable, and, in fact, may be misleading to the intended users of the appraisal report, including rating agencies, the IRS, and the secondary mortgage market participants. In developing income and expense statements and cash flow projections, an appraiser must weigh historical information and trends and factors that affect the anticipated income and expenses. Value is, after all, the present value of the anticipated future benefits to be derived from the property.

 Special Thanks to Maureen McGoldrick, MDM Appraisals, LLC for her contributions.


Advertisements

About Jim MacCrate

Real estate appraiser and valuation consultant for more than 30 years specializing in reviewing real estate appraisals, risk management and quality control.
This entry was posted in Appraisal Process, Uniform Standards of Professional Appraisal Practice and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

2 Responses to Real Estate Appraisal Scope of Work and The Appraiser’s Data Request

  1. Flavio says:

    the appraisers scope of work section is the first thing I pay attention to when evaluating appraisals (a habit I obtained from my former examiner days), the information or lack of information there provides clues on how reliable the appraised value is…good article, thanks

  2. Chet Buhrmann says:

    Jim, This is really great, thanks! I am thinking that if you send this
    questionnaire to a prospective client, it could minimize any legal issues
    with regards to not obtaining adequate information regarding the subject
    property. I think if you sent it out and had the response (or no response)
    in the work file, this would be a good thing! It could be tailored to
    commercial or residential use……

Comments are closed.