Commercial Real Estate Appraisal Report Types Explained

 

While all appraisals require a complete appraisal analysis done by the appraiser, the degree in which the details are presented to the client is dictated by the Report Type and Report Style.

What is the Difference Between Appraisal Report Types?

The main difference between the report types is the amount of detail presented within the appraisal.

Also, restricted appraisal reports cannot be used or relied on by any other party than the client (for this reason restricted use appraisals are not common).

2014 Report Type Change Overview

As of 2014, there are now only two appraisal report types addressed by USPAP, which are now referred to as Appraisal Report and Restricted Appraisal Report.

USPAP is the governing standard the sets forth the minimum appraisal reporting requirements within the State of Colorado (and most other states). USPAP is updated every two years.

Prior to the 2014/2015 revision of USPAP, there were three report type formats and related reporting requirements available:Restricted Use, Summary, and Self Contained (moving from least detailed to most detailed).

As of the 2014/2015 USPAP update, however, the above three report types are no longer addressed by USPAP. Currently, only two report types are prescribed to meet the minimum requirements and reporting standards of USPAP:Restricted Appraisal Report and Appraisal Report.

Both these report types are complete appraisals with certified values, though the level of reporting detail varies significantly.

This is a significant change to the appraisal industry that not all appraisers and appraisal report users are yet fully familiar with.

The caveat to the report type changes is that other, modifying words can be used in addition to, but not in replacement of, Appraisal Report and Restricted Appraisal Report. Thus, any appraisal could still be called a Summary Appraisal Report, Self Contained Appraisal Report, or any other term as long as it is followed or paired with Appraisal Report or Restricted Appraisal Report. For this reason, these other report types are still explained on this website.

Restricted Appraisal Report

A Restricted Appraisal Report contains minimal detail/content and can legally only be relied upon by the client, not any other party. This type of report is not appropriate for most appraisal situations due to the fact that it contains minimal details and content. Further, this report type may not be understood without additional information contained in the workfile that is not transmitted in the report.

This is the least common appraisal report type because it does not satisfy the needs of most lenders or appraisal users. However, when a very abbreviated appraisal report that is consistent with the intended use of the appraisal is desired, the client is the only user of the report, they are already familiar with the property to some extent, and they do not desire to see details regarding the subject or the valuation, this can be a good solution.

The primary benefit of this report type is the price of the appraisal- due to the fact that only minimal details are presented in the report, it takes less time for an appraiser to develop, and conversely, costs less than a full Appraisal Report.

The primary con of this report type is that it can only be used by one party (the client) and does not contain enough detail for most appraisal uses.

The minimum reporting requirements of the Restricted Appraisal Report are as follows:

  1. State the identity of the client and any intended users, by name or type;

And state a prominent use restriction that limits use of the report to the client and warns that the rationale for how the appraiser arrived at the opinions and conclusions set forth in the report may not be understood properly without additional information contained in the appraiser’s workfile.

  1. State the intended use of the appraisal
  2. State information sufficient to identify the real estate involved in the appraisal.
  3. State the real property interest being appraised.
  4. State the type and definition of value and cite the source of the definition.
  5. State the effective date of the appraisal and the date of the report.
  6. State the scope of work used to develop the appraisal.
  7. State the appraisal methods and techniques employed, state the value opinion(s) and conclusion(s) reached, and reference the workfile; exclusion of the sales comparison approach, cost approach, or income approach must be explained.
  8. State the use of the real estate existing as of the date of value and the use of the real estate reflected in the appraisal.
  9. When an opinion of highest and best use was developed by the appraiser, state that opinion.
  10. Clearly and conspicuously state all extraordinary assumptions and hypothetical conditions, and, state that their use might have affected the assignment results.
  11. Include a signed certification in accordance with Standards Rule 2-3.

Appraisal Report

An Appraisal Report contains a moderate or extensive level of detail, depending on the intended use of the report, scope of work property type and format (form or narrative).

Prior to 2014, there were specific legal reporting requirements required for either Summary or Self Contained Appraisal Reports. Now, there are only specific legal reporting requirements for an Appraisal Report. However, the terms Summary and Self Contained can still be paired with Appraisal Report, even though there is only one minimum legal standard that applies, which is that of an Appraisal Report.

Compared to a former Summary Appraisal Report which contained a moderate level of detail, and the former Self Contained Appraisal Report which contained an extensive level of detail, our Appraisal Reports generally contain a moderate amount of detail, with more/less emphasis on the factors related to the property and valuation that would require more/less detail than other factors.

Additionally, our ‘form’ Appraisal Reports are most similar to the former Summary report, and our ‘narrative’ Appraisal Reports are most similar to the former Self Contained report.

Appraisal Reports can have one, two, or three approaches to value, depending on the situation of the property and use of the appraisal.

The minimum reporting requirements of the Appraisal Report are as follows:

  1. State the identity of the client and any intended users, by name or type.
  2. State the intended use of the appraisal
  3. Summarize information sufficient to identify the real estate involved in the appraisal, including the physical, legal, and economic property characteristics relevant to the assignment.
  4. State the real property interest being appraised.
  5. State the type and definition of value and cite the source of the definition.
  6. State the effective date of the appraisal and the date of the report.
  7. Summarize the scope of work used to develop the appraisal.
  8. Summarize the information analyzed, the appraisal methods and techniques employed, and the reasoning that supports the analyses, opinions, and conclusions; exclusion of the sales comparison approach, cost approach, or income approach must be explained.
  9. State the use of the real estate existing as of the date of value and the use of the real estate reflected in the appraisal.
  10. When an opinion of highest and best use was developed by the appraiser, summarize the support and rationale for that opinion.
  11. Clearly and conspicuously state all extraordinary assumptions and hypothetical conditions, and, state that their use might have affected the assignment results.
  12. Include a signed certification in accordance with Standards Rule 2-3.

Report Style

Before getting into the three Report Types, it is useful to distinguish the way in which the report is generated, also known as the Report Style. There are two report styles available:Form and Narrative.  All three report types can be developed under either a form or narrative style (Consider the report type to be a sub-category of the report style).

Form Reports vs. Narrative Reports

Form Report looks and feels like a property report card. Most of the form report formats were developed to allow for a “standardized” look and feel of an appraisal. Read more about the Form format here…

Narrative Report looks like an offering memorandum, or essay of sorts. Appraisers are generally free to develop the look and feel of the report as they wish, however, the minimum requirements of USPAP must still be met. Read more about the Narrative Format here…

Former Report Types

Prior to the 2014 change, there were three report types, as follows.

Restricted Use Report

Restricted Use Appraisal Report contains minimal detail and is intended to be relied upon by the client only, not any other party.

This is the least common appraisal report type because it does not satisfy the needs of most lenders. The presentation of facts and analysis is limited and will most likely not be understood completely by the client. That is, the appraisal will establish the value of the property, but the explanation as to why is limited.

Nowadays, anyone considering a restricted use report via narrative format may be better served with a summary report via form format. This is because the pricing will be similar, however, the summary report can be relied on by other parties and may be easier to understand.

Additional information on the Restricted Use Report…

Summary Report

Summary Appraisal Report is the most common report for commercial appraisals. This type of report contains a moderate level of detail and offers a good balance between cost and reporting detail.

This is the most common appraisal report within the industry because it satisfies the needs of lenders and large institutions, without getting into a high level of detail. Summary Appraisal Reports can have one, two, or three approaches, depending on the situation of the property and use of the appraisal.

Additional information on the Summary Report…

Self-Contained Report

Self-Contained Appraisal Report contains an extensive level of detail.

This is the second most common appraisal report within the industry because it satisfies the needs of lenders and large institutions, but can sometimes be arduous to read due to the amount of information. Self-Contained Appraisal Reports can technically have one, two, or three approaches to value, depending on the situation of the property and use of the appraisal.

Additional information on the Self-Contained Report…

What report type is best for me?

USPAP mandates that it is the appraiser’s responsibility to develop an appraisal report that accurately reflects the scope of work related to the assignment. The best way to understand which report type is best for your situation is to contact an appraisal company.

 
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