THE APPRAISAL PROCESS

An appraisal is an estimate of value as of a specified date with a specified purpose in mind. The appraisal process is defined as follows:

"A systematic analysis of the factors that bear upon the value of real estate. An orderly program by which the problem is defined, the work necessary to solve the problem is planned, and the data involved are acquired, classified, analyzed, and interpreted into an estimate of value".

The purpose of the appraisal of the subject property is to estimate its fair market value as of the final date of inspection herein. The first step necessary in order to arrive at an estimate of market value is to consider the typical purchaser of real estate in this particular type of market, consider comparable sales which are similar to the subject property and which have overall value characteristics similar to the subject property.

The three basic approaches used to estimate market value are:

1. 1.The Cost Approach
2. 2.The Direct Sales or Market Comparison Approach
3. 3.The Income or Economic Approach

All three approaches to value may or may not be applicable to each and every parcel of real estate.

The first approach to value is the Cost Approach. The Cost Approach is an estimate of value utilizing the Sales Comparison Approach for estimating the underlying land value and adding the replacement or reproduction cost of all improvements less depreciation in all its various forms, ultimately arriving at an indication of value. The inherent weakness in this approach is the estimate of depreciation and generally, the older the property being appraised, the more depreciation in all its various forms.

Depreciation includes physical curable and incurable depreciation, functional curable and incurable depreciation, as well as economic obsolescence, which are depreciation in all its various forms.

Depreciation includes physical curable and incurable depreciation, functional curable and incurable depreciation, as well as economic obsolescence, which are depreciation factors affecting the subject property in question that are from an outside source.

The Direct Sales Comparison Approach is based upon the theory that an informed buyer would pay no more for one property than he would pay to acquire an equally desirable substitute property. This approach is based upon comparing recent sales of similar properties and analyzing the differences in value by direct by direct adjustments, bringing the comparable property into conformity with the subject property. Comparisons are generally made for location, financing terms, date or time of sale, as well as physical and functional characteristics.