The Value of Multiple Values
by Stan Choate, Appraisal Tech / Valuation Associate
Sometimes, the most difficult part of the appraisal process is determining how many opinions of value are needed. The question seems simple enough, but it is complicated by two factors. The first complication arises because customers, being new to the appraisal process, are not entirely sure how to make that decision, and they probably did not know it would be a factor. The second complication, which is the topic of this newsletter, is the limitations of a single opinion of value.
One opinion of value can only tell the customer so much about the property’s market value. That one opinion of value can separate the value of buildings from the value of the land, and it can separate the value of different land classes from each other. But that one opinion value cannot separate the value of one tract of land from another. It also cannot tell the market value of a property at two different effective dates. Ultimately, that one opinion of value can only give one estimate for an entire property at a narrow point in time.
In order to see distinct market values for distinct tracts of land, multiple opinions of value are usually needed. If you want to know the value of a 200-acre tract which is 25% tillable, and also know the separate value of a 120-acre tract which is 95% tillable, then you need two opinions of value. That is true even if the two tracts are close, or even contiguous. And if you decide that you also want to know the value of another 75-acre timber tract, that will require a third opinion of value.
The same principle holds true for appraising one property at multiple effective dates. Most customers understand that the market value of a property changes over time. In order to determine the difference in value between date A and date B, the appraiser must analyze sales of comparable properties for both dates. It may be only one property, but it is practically the work of two appraisals, because the amount of sales research needed is doubled.
When placing an appraisal order, the appraiser should help the customer determine, clearly and decisively, how many opinions of value are needed at the beginning of the project. For one thing, it affects fee: more opinions of value will require more work and will therefore most likely cost more. Also, if the appraiser prepares only one opinion of value when more were needed, he will inevitably be asked to do the project over again, which will waste time for the customer and possibly cost more money as well. Time and money are saved by making the right choice on these matters at the beginning of the process.
The intended use of the appraisal plays a large factor in making these decisions. When banks are looking to refinance a loan, they often request a single opinion of value on multiple tracts of land. That suits the intended use well enough, because all they need is that one total market value. On the other hand, multiple opinions of value will almost always be needed when a family wishes to divide various tracts among themselves in a way that equally distributes the value of those tracts. Another case requiring multiple opinions is when the customer wants a single tract valued as of different effective dates, such as for tax purposes: one opinion of value is needed per date.
At Spurgeon Appraisals, we have years of experience with many different kinds of appraisals done for various purposes. We have the expertise needed to guide you and ensure that the finished product is exactly what you needed.
Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.
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