Preliminary Analysis: Data Identification, Sources, and Planning

Chapter 3: Preliminary Analysis: Data Identification, Sources, and Planning

Introduction:

Preliminary analysis is the second stage in the real estate appraisal process. It involves a careful examination and evaluation to identify required data, reliable sources, and a detailed work plan for efficient and effective appraisal.

Chapter Objectives:

• Understand the importance of preliminary analysis in real estate appraisal.
• Identify the types of data needed for an accurate appraisal.
• Explore various data sources and evaluate their reliability.
• Learn how to develop a detailed work plan for real estate appraisal.
• Understand the legal and ethical aspects of data collection.

1. Importance of Preliminary Analysis:

Preliminary analysis helps in:

• Defining the scope of the appraisal: Determining valuation criteria (e.g., market value, insurance value, compulsory value), valuation date, and property rights.
• Identifying relevant data: Preventing the collection of unnecessary or irrelevant data.
• Ensuring appraisal accuracy: Reducing the risk of relying on incorrect or misleading information by identifying reliable data sources.
• Saving time and resources: Ensuring timely and within-budget completion through a clear work plan.
• Compliance with professional standards: Ensuring adherence to local and international professional and ethical standards.

2. Identifying Necessary Data:

Data is categorized into two main types:

• General Data: Related to the real estate market and indirectly affects property values.
  • Market Trend Data: Information on supply and demand, interest rates, inflation rates, and economic growth.
    • Example: Lower interest rates lead to increased demand and higher property prices.
    • Formula (Simplified): P = f(D, S, i, e) where:
      • P = average property price❓❓
      • D = Demand for properties
      • S = Supply of properties
      • i = Interest rates
      • e = Market expectations
  • Competitive Supply and Demand Data: Information on similar properties for sale or rent in the neighboring area.
    • Example: A large number of similar vacant properties in the same area may reduce the value of the property being appraised.
• Specific Data: Directly related to the property being appraised.
  • Location Data: Information on the property’s location, proximity to facilities and services, and the surrounding environment.
  • Physical Characteristics Data: Information on land area, building area, number of rooms, quality of finishes, and property age.
  • Real Estate Rights Data: Information on the type of ownership (absolute ownership, long-term lease), and any restrictions or easements on the property.
  • Income and Expense Data (if the property is leased): Information on monthly or annual rent, operating and maintenance expenses, and occupancy rates.

3. Identifying Data Sources and Assessing Reliability:

Data sources are categorized into:

• Primary Data: Collected directly by the appraiser or other experts.
  • On-site Property Inspection: Examining the property and assessing its physical characteristics and location.
  • Interviews with the Owner or Tenant: Obtaining information about the property’s history, operating expenses, and any problems or defects.
  • Topographic Survey: Accurately determining the property’s boundaries and area.
  • Technical Analyses: Examining the soil and testing the materials used in construction.
• Secondary Data: Obtained from published or registered sources.
  • Government Records: Ownership records, land maps, and building permits.
  • Real Estate Databases: Information on similar properties that have been sold or leased in the area.
  • Economic Reports: Information on market trends, interest rates, and inflation rates.
  • Trade Organizations: Information on construction costs, occupancy rates, and industry trends.

Assessing Source Reliability:

• Reputation: Is the source known for accuracy and objectivity?
• Independence: Is the source independent of any special interests?
• Recency: Is the information recent and regularly updated?
• Auditing: Is the information audited by an external party?
• Consistency: Is the information consistent with other reliable sources?

4. Developing a Detailed Work Plan:

The work plan should include:

1. Task Identification: Identifying all necessary tasks, such as data collection, data analysis, and report preparation.
2. Resource Identification: Identifying required resources, such as time, budget, personnel, and equipment.
3. Schedule: Determining the time needed for each task and setting start and end dates.
4. Responsibility Assignment: Assigning responsibility for each task.
5. Monitoring and Control Mechanisms: Establishing mechanisms to monitor progress and ensure completion on time and within budget.
6. Budget Preparation: Determining the expected costs, including appraiser fees, data collection costs, and report preparation costs.

5. Presenting Appraisal Fees and Contract Conclusion

The amount charged by the real estate appraiser depends on several factors, including:

• Experience and Reputation of the Appraiser: The more experience and reputation the appraiser has, the higher the fees they can charge.
• Complexity of the Appraisal: The more complex the appraisal, the higher the fees.
• Time and Effort Required: The more time and effort the appraisal takes, the higher the fees.
• Operating Costs: The appraiser must cover their operating costs, such as salaries, rent, insurance, and other expenses.
• Market Conditions: The appraiser must be aware of market prices and charge competitive fees.

The appraisal request must be in writing to avoid any misunderstanding regarding the appraisal requirements.

6. Legal and Ethical Aspects:

The appraiser must comply with legal and ethical standards when collecting data. The appraiser must respect privacy rights and obtain the owner’s consent before collecting any information about the property. The appraiser must avoid any conflicts of interest and be objective and impartial in their assessment.

Note: The appraiser must be aware of local and national privacy laws and ensure compliance with all relevant laws and regulations.

Conclusion:

Preliminary analysis is a crucial stage in the real estate appraisal process. By identifying necessary data, reliable sources, and developing a detailed work plan, the appraiser can ensure the accuracy and reliability of the appraisal, and comply with professional and ethical standards.