I find myself pondering ‘value’ and what it means to people.
In ‘Appraisal’ there are three views of value. The sales comparison value. The income approach to value. And the cost approach to value. Each of these approaches can have different values.
An appraiser puts together an opinion of value.
This is not much different than people in a family putting different approaches to value in their lives. We will have some people in the same household, look at an experience and place different values on them. Some may think the experience was horrible. It made them mad, they just didn’t show it. They never want to experience that event again. Others, may see that event as bringing them significant joy, even giving them a cornerstone of meaning to who they are and what they do with their lives. Some may not realize that the event even occurred, even though they were a significant part of the event.
This can be my household at times. You see I have been raising three different children, with different values and opinions on what matters to them. Currently, I have a daughter who is eighteen, one son that is sixteen and another soon to be fifteen. Each of them has unique perspectives and we can have events and one will think it was the greatest experience in their life, one thinks it was horrible, and another may not even recall it happened. All experienced the same event. All are just opinions of what they put value on that event.
How they value that experience is significant.
Within the approach an appraiser takes to value, the math has to be consistent. The approach has to be complete in not omitting any facts about the property in question. And a value has to be weighted based on the approach that the appraiser takes to evaluate the property. Sometimes a multiple of approaches has application. Often, due to current use of the property, one of the three approaches just is not possible to bring a defendable approach to value.
The appraiser must be able to defend their approach. So if they use the sales comparison approach, they need to be competent in selecting comparable properties that meet the design, size, similar function as the subject property. Often time, they will need to defend their opinion in a hearing or in court of law. Depending on how the appraisal is used, a systematic audit of appraisals is done such that a third party will audit their work and review their approach and opinion.
If the property could, or should be viewed as unique, the most probable approach will be cost approach. How much would it cost to replicate that property today?
If the property has rental income possibilities, then there is an approach to that as well.
So just like my kids, different appraisers can come to different, defendable, true values to the same property. The appraisal is an opinion that must be defendable. Opinions are not right or wrong, they just are. Some may think that a system where appraisers can arrive at a different number value for the same property is flawed. That is why you can always ask another appraiser to take a look at a property. The different appraisals can both be valid and appropriate opinions of value on the given property.
Just like being a father who is raising three beautifully unique individuals with independent minds and experiences that matter more to them than others, I cannot tell them their opinion is not valid or ‘right’. I do ask them questions and attempt to understand what they are looking for out of life, which may be different from my own values. However, both my opinion and theirs is valid as long as it is defendable, and true.
Whether you are needing a second appraisal of your property, or help with appraising the value of your kids, the McElreath team is here to serve you.