Appraisals come in at least three flavors. The first is based on comps. What would a comparable property sell for in the same area? The second is based on expected revenue. That’s the most common way to appraise commercial properties. The third type of appraisal is the replacement cost. In some ways, cost-based appraisals are similar to construction cost estimates.
Contractors figure the quantity and cost
of materials, the cost of labor and the equipment expense. Then they add fees, taxes
and markup. That’s the contract price – and also the cost to the first owner.
The most accurate cost-based appraisal
would be an exhaustive labor and material construction cost estimate. Few appraisers
have the background, experience or patience to do that. Anyhow, estimates start
with building plans. Appraisers seldom have the home plan. Appraisers have something
better, the building itself.
Sometimes you’ll hear a cost-based appraisal
called a valuation. No matter the term,
work begins with a visit to the site: counting, measuring, evaluating, making judgments
about replacement cost.
Professional Standards for Home Appraisal
Fannie Mae’s Uniform Appraisal Dataset sets the standard for residential appraisals. Appraisers working for Fannie Mae lenders evaluate the residence in two categories:
(1) quality of construction and (2) condition of the home.
- Quality of construction can be any of six classes: Q1 (highest-grade materials and workmanship) to Q6 (lowest quality materials, serious deficiencies).
- Condition of the home can fall in any of six categories: C1 (newly constructed) to C6 (safety, soundness, or structural integrity compromised).
Appraisers agree that Fannie Mae standards
improve reliability. But that’s not the whole story. Going through the Fannie Mae
appraisal process still doesn’t answer the most important question, what’s the value
of this building? And that’s where National Appraisal Estimator steps in.
NAE follows the Fannie Mae matrix – 6
quality classes and 6 condition categories. But the result is a neat cost-based
appraisal with full audit trail that reads like a construction cost estimate. Labor,
material and equipment costs are broken into 28 categories. Indirect costs and markup
show up in five categories. All figures are adjusted to the Zip area and are based
on current costs of both materials and labor. But there’s more.
Going One Better
Fannie Mae is content to let appraisers
drop an entire home into one of six quality classes and one of six condition categories.
No appraiser should be comfortable with that. Foundation, exterior and interior
finish, roof, windows, doors, kitchen and bath deserve separate consideration. Quality
of the floor and quality of the roof may be very different. No single number yields
a fair representation. Likewise, condition of the home should be evaluated by category.
What’s the condition of the roof? Of the floor? Of the windows and doors? National
Appraisal Estimator does all that and more.
If you appraise home values, whether
for lenders or for insurance purposes, have a look at National Appraisal Estimator.
Maybe best of all, NAE comes from Craftsman,
the publisher of National Building Cost Estimator, relied on by estimators and appraisers for over 40 years. You’re not going to find
a better, more reliable appraisal tool than NAE.
