Narrative Appraisals

In recent years there have been a number of questions raised about what appraisal reports are to contain.  For appraisers specializing in residential real estate the answer is provided by various form reports – both the appraiser and the client know which form is appropriate to the assignment and the work proceeds accordingly.

For commercial, industrial, and special purpose appraisals, such as the type our company provides, resolution of the report format is more difficult.  Many appraisers and virtually all of the clients are confused by the allowable formats.  Clients are confused because they get conflicting information from different appraisers…and appraisers are confused because the regulatory agencies change the rules EVERY year. Yes, that is right EVERY year.

Today, the substance of an appraisal report is dictated by the “scope of work” agreed upon between the appraiser and client.  Then, the format of the report can be addressed in one of three ways: a restricted report, a summary report or a self-contained report.   Mixed in with this terminology is the concept of a limited report.   The concept of limited reports is really addressed in the scope of work section and in any case does not have to do with the report format (the way the final report looks).  A limited report is a report that eliminates a substantive aspect of analysis – for example, an appraisal of an office building without an income approach, appraising it entirely on the basis of physical comparison with other office buildings that have been sold.  As of July 1, 2007, the concept of labeling a report limited will "go away" and the scope of the report will dictate the depth of analysis.

Our experience is that the great majority of clients want either a restricted report or a summary report.  The basic difference between these two types of reports is that in a restricted report there is very minimal information – basically, just a value.  A summary report, on the other hand, provides information allowing the client to get a feel for how the value was developed.  There is a third type of report format – a self-contained report, but the need for that type of report is very limited.  We never recommend a self-contained report format for our clients.  Self-contained reports are very expensive and for the vast majority of clients, overkill.

Clients wanting more than just a value (the restricted report format) have varying needs.  Some just want a brief overview of the local market and others want to know considerable detail.  Both of types of clients can be served with a summary report.  Summary reports can range from very simple to complex.  The complex sample is actually only modestly complex and is only a portion of a report.

While the property value reported does not change from report format to report format, the appraisal fee does tend to change.  More writing takes time and ultimately time costs money.