The following represents a sample format of a narrative report.
Letter of Transmittal
The letter of transmittal identifies the client, the effective date of the appraisal, the date of inspection and hypothetical condition that could impact on the value, as well as the final value estimate.
Definition of the Appraisal Problem
It is at this initial stage that the appraiser identifies the purpose, function, scope of the assignment and intended users of the appraisal report.
Contingent & Limiting Condition
This section of the report identifies the appraiser's liability as to the analysis provided.
An independent Registry Office Search by a conveyancer is included in each report. This identifies the subject property in terms of a specific location and provides a detail history of all sales and all encumbrances currently registered on title. This initial step identifies any potential anomalies that can affect market value and save the client both time and money by mitigating any concerns early on in the process.
Our site description identifies each property in terms of the frontage / depth and total area. Access to and from the property is carefully analyzed in order to determine any egress issues that can possibly have an effect on the market value. All available services are identified and confirmed for future availability. Assessment and taxes are verified.
Land use Controls
Every appraisal requires a visit to the municipal offices in order to determine the most current Zoning and Official Plan Designation and most important any potential land use changes on the subject and surrounding properties that can affect market value. All mapping and personnel are referenced in each report.
Each property is personally inspected to identify any and all physical components. The appraiser interviews the owner/occupant to ascertain all repairs and/or improvements completed over the past several years. The entire property is photographed in order for the client to visualize the current condition of the property. The appraiser will identify mechanical, electrical and structural components of each property. All building areas will be calculated either from plans or actual measurements. The gross and net rentable areas of the improvement will be identified. It should be noted that although the appraiser identifies the physical components, the appraiser is NOT a building inspector. Specific condition issues relating to the structural, mechanical or electrical should be dealt with a certified building inspector, or structural engineer.
Highest and Best Use
Each property is analyzed with respect to the legally permitted uses, the physically possible uses, the financially feasible uses and finally the maximally productive uses. This analysis is done on the basis of the property consisting of vacant land and/or as though improved.
Approaches to Value
The appraiser has three approaches to value in order to ascertain the value of a property. These include the Cost Approach, Direct Comparison Approach and the Income Approach.
Wojas Appraisal Group Inc., has the most current cost manuals available. They include the Boeckh, and Marshall & Swift Valuation Manuals. Where necessary, costing is obtained directly from contractors. Depreciation is estimated from a variety of sources. A detailed site analysis is also provided in order to complete this process.
The appraiser will provide a minimum of 4 to 6 comparable sales that have sold within the subject's general vicinity. Current listings are also identified. Each comparable property is analyzed in relationship to the Subject, in terms of its financing, date of sale, location, land use controls, exposure, corner influence, available amenities, as well as its age and overall condition. All major differing characteristics are displayed on an adjustment grid. The adjustment grid provides a comprehensive overview of the adjustment process. The adjustment grid also provides a range in value that can be applied to the Subject. It is at this stage of the appraisal that the appraiser, based upon his level of expertise, can adequately adjust the comparable sales to the Subject Property. Once a range in value can be ascertained a value rate is applied to the Subject.
The Income Approach is based upon both current lease obligations and current market rental rates. Market rental rates are derived from rental surveys that are completed on an as needed basis. These rental surveys compare the market rentals to that of the subject. Vacancy and credit loss factors are determined by market conditions. These are carefully reviewed for each property type. Operating expenses are carefully analyzed and compared with industry standards. All expenses are analyzed on a per unit rate and compared to the comparable data. This helps to identify any inconsistencies that can offset the true net income. Capitalization rates are generally derived from market sales. These rates are analyzed on the same basis as similar property types with similar operating expense ratio's. Capitalization rates are often developed through analysis of the sales data utilized in the Direct Comparison Approach.
Reconciliation and Final Value Estimate
Typically, all three approaches to value are not utilized in all property appraisals. The approaches utilized within each report are summarized in terms of their value estimates. The value estimates are further refined as to their reliability and applicability to the appraisal problem. Any major anomalies are then analyzed and fully disclosed in the report. A Final Value estimate is then derived.