How to Build a Strong Real Estate Appraisal Report

Journal Issue:

Sep 2004

Column Name:

Journal Article:

In bankruptcy matters, the value of the estate's industrial, commercial or residential real estate frequently is the subject of controversy. Accordingly, parties-in-interest often rely on real estate appraisals. These parties include the debtors, the creditors, their respective legal counsel and the bankruptcy court. This discussion will (1) summarize the basic components of a real estate appraisal report, (2) illustrate the typical sections presented in an appraisal report and (3) summarize the factors to look for in an appraisal report. The inclusion of these components, sections and factors should help the appraisal report withstand a review within a bankruptcy environment.

The Appraisal Report

The Uniform Standards of Professional Appraisal Practice (USPAP) defines the term "report" as "any communication, written or oral, of an appraisal, appraisal review or appraisal consulting service that is transmitted to the client upon completion of an assignment."¹

USPAP also presents the following definitions that are relevant to real estate appraisal reports:

Self-contained Appraisal Report: a written report prepared under Standards Rule 2-2(a).

Summary Appraisal Report: a written report prepared under Standards Rule 2-2(b).

Restricted Use Appraisal Report: a written report prepared under Standards Rule 2-2(c).²

The selection of the appropriate type of report to prepare in a bankruptcy appraisal assignment is influenced by (1) the specific instructions of the appraiser's client, (2) the relevant statutory authority, judicial precedent or administrative rules, and (3) the experience and judgment of the individual appraiser.

For purposes of this discussion, we assume that the appraisal subject is real estate. We assume that the appraisal subject is a fee-simple ownership interest in the subject property.

This discussion assumes that the appraiser (1) prepares a written appraisal report in preparation for expert witness testimony and (2) presents the written appraisal report as part of the expert witness testimony. During the hearing (whether at an administrative or judicial level), the appraiser will often refer to the written appraisal report during both direct and cross examination. In fact, many experienced appraisers consider the written appraisal report to be "the appraiser's best friend" during expert testimony.

Real Estate Appraisal Report Summary

Exhibit 1 presents an illustrative table of contents (or report outline) for a typical narrative real estate appraisal report. This table of contents is consistent with the USPAP requirements for a self-contained appraisal report, i.e., a report prepared under Standards Rule 2-2(a).

Real Estate Appraisal Report Content

The following discussion summarizes the typical contents of a narrative real estate appraisal report.

1. Title Page. The title page should clearly identify the subject of the appraisal report. The title page will typically identify (1) the property address, (2) the definition of value and (3) the "as of" valuation date.

2. Letter of Transmittal. The letter of transmittal typically includes the following information:

date of letter and salutation
street address of the property and a brief description of the property
identification of the subject property ownership interest
statement that a property inspection and other necessary investigations and analyses were made by the appraiser
reference that the transmittal letter is an integral component of an accompanying appraisal report
identification of the type of appraisal and type of appraisal report
standard of value (or definition of value) concluded in the appraisal report
date of the appraisal
opinion of value
identification of any extraordinary assumptions and hypothetical conditions
appraiser's signature.

3. Table of Contents. The table of contents typically lists all of the sections of the appraisal report in the order in which they are presented.

4. Certification. The certification is typically presented as a separate page in the introduction section of the appraisal report. However, the certification may be combined with the final value conclusion. In any event, the appraiser(s) will sign and date the certification. The certification will indicate whether the appraiser has personally conducted the appraisal in accordance with USPAP. According to USPAP Standards Rule 2-3, each written real estate appraisal report should contain a signed certification.

5. Summary of Important Conclusions. The summary of important conclusions page, sometimes called the executive summary page, typically includes the following items:

brief identification of the subject property
estimate of the highest and best use of the land as if vacant
estimate of the highest and best use of the property as improved
age of the improvements
abbreviated site description
land value opinion
value indication from the cost approach
value indication from the income-capitalization approach
value indication from the sales-comparison approach
final estimate of the defined value
description of any extraordinary assumptions or hypothetical conditions.

6. Photographs. As a general rule, there cannot be too many photographs in a bankruptcy appraisal report. One of the appraiser's responsibilities is to adequately acquaint the finder of fact with the subject property. Photographs help this process.

7. Location Maps. Location maps continue the process of familiarizing the finder of fact with the subject property. It is not uncommon for the report to present two or three location maps. In this case, each successive map presents a more localized location. Ideally, the finder of fact will be able to look at the most localized location map and know exactly where the subject property is located.

8. Plot Plan. A plot plan is a plan showing the layout of the improvements on the subject property site. A plot plan typically shows improvement locations (on the site), improvement dimensions, landscaping, parking areas and other physical features.

9. Floor Plan. A floor plan is the architectural drawing that shows the floor layout of a building including (1) the exact room sizes and (2) the special relationships of the rooms.

10. Type of Appraisal and Type of Appraisal Report. USPAP defines two alternative types of appraisals: (1) complete appraisal and (2) limited appraisal. These two types of appraisals are defined as follows:

Complete Appraisal: the act or process of developing an opinion of value or an opinion of value developed without invoking the departure rule.

Limited Appraisal: the act or process of developing an opinion of value or an opinion of value developed under and resulting from invoking the departure rule.³

The bankruptcy appraisal report should clearly identify both (1) the type of appraisal performed and (2) the type of appraisal report presented. The three alternative types of appraisal reports were discussed above.

11. Extraordinary Assumptions and Hypothetical Conditions. The Dictionary of Real Estate Appraisal defines an extraordinary assumption as follows:

An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser's opinions or conclusions. Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal or economic characteristics of the subject property; or about conditions external to the property such as market conditions or trends, or about the integrity of data used in an analysis.⁴

The Dictionary of Real Estate Appraisal defines a hypothetical condition as follows:

That which is contrary to what exists but is supposed for the purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends, or about the integrity of data used in an analysis.⁵

Extraordinary assumptions and hypothetical conditions should be clearly stated. When a value conclusion is subject to an extraordinary assumption or hypothetical condition (such as a pending lease agreement, atypical financing or a known but not-yet-quantified environmental issue), the appraiser should describe the condition in the appraisal report so that its effect on the value conclusion is clear.

12. General Assumptions and Limiting Conditions. The statement of assumptions and limiting conditions is used both (1) to help protect the appraiser and (2) to inform the client and other appraisal report users. The general assumptions often encompass issues such as (1) legal and title considerations, (2) liens and encumbrances, (3) property management, (4) information furnished by others (e.g., engineering studies, surveys), (5) concealment of hazardous substances on the subject property, (6) compliance with zoning regulations and (7) compliance with local, state and federal laws.

General assumptions and limiting conditions should not be considered a "boilerplate" section of a bankruptcy appraisal report. Each assumption or limiting condition should be reasonable and supportable in the context of the particular appraisal. In addition, the statement of general assumptions and limiting conditions should not conflict with the appraiser's other professional responsibilities, such as the identification of extraordinary assumptions or hypothetical conditions.

13. Purpose and Intended Use of the Appraisal. To avoid an unintended (and inappropriate) use of the appraisal report, the intended use and the intended user of the property appraisal should be specified in the report. USPAP defines both terms "intended use" and "intended user" as follows:

Intended Use: the use or uses of an appraiser's reported appraisal, appraisal review or appraisal consulting assignment opinions and conclusions, as identified by the appraiser based on communication with the client at the time of the assignment.

Intended User: the client and any other party as identified, by name or type, as users of the appraisal, appraisal review or appraisal consulting report by the appraiser on the basis of communication with the client at the time of the assignment.⁶

14. Scope of the Appraisal. A clear and accurate description of the scope of the appraisal is useful to all individuals (and particularly to the finder of fact) who may rely on the appraisal. The scope of the appraisal refers to (1) the amount and type of information researched and (2) the analyses performed in the appraisal assignment. Professional standards impose a responsibility on the appraiser to determine the appropriate scope of work in order to (1) conclude the value opinion and (2) prepare the appraisal report. By describing the scope of the appraisal, the appraiser effectively accepts this responsibility.

15. Definition of Value and Date of Value Opinion. The definition of value (also called the standard of value) is the type of value that is estimated in an appraisal report. The date of the value opinion (also called the effective date of the appraisal) is the "as of" date to which the value opinion applies.

16. Property Rights Appraised. In addition to identifying the subject property, the appraiser should state and define the particular property rights or ownership interests being appraised. Most bankruptcy appraisals involve the valuation of a fee-simple estate. However, a thorough discussion of the property rights appraised is appropriate in an appraisal of partial interests in property, limited ownership rights such as surface rights or mineral rights, fee-simple estates subject to long-term leases and leasehold interests. In addition, such other encumbrances as easements, mortgages and special occupancy or use requirements should be identified and explained in relation to the definition of value concluded.

17. Identification of the Property and Legal Description. An accurate legal description is particularly important in a bankruptcy appraisal. There are three basic types of legal description: (1) the recorded lot, block and tract (also known as the recorded map or subdivision map) description, (2) the metes and bounds description and (3) the government (or rectangular) survey description.

18. Identification of Personal Property, Intangible Property and Other Non-realty. In bankruptcy appraisals, it is particularly important for the appraiser to identify (1) the non-realty items included in the appraisal and (2) the non-realty items excluded in the appraisal. There are three common types of non-realty items that are often identified in a property tax appraisal: (1) personal property, (2) business value and (3) tax incentives.

19. Ownership and History. The bankruptcy appraisal report should discuss both (1) the current ownership of the subject property and (2) the history of recent sales of the subject property.

20. Market Area, City, Neighborhood and Location Data. Arguably, no other aspect of appraisal is as important as the market area, city, neighborhood and location analysis. However, defining the subject neighborhood is sometimes difficult in the appraisal of an industrial or commercial property. Four categories of factors affect the market area analysis: physical factors, economic factors, social factors and political factors. Each of these factors is summarized below.

Physical and Locational Factors. The physical factors that affect market area desirability and quality include the natural features of location, as well as those created by people. Natural features include topography, trees, lakes and other visual amenities. Natural features that affect market areas also include climate and geological conditions such as weather, soil quality and flood, slide and earthquake zones.

Economic Factors. An important economic factor to consider is whether the income level of the area occupants is sufficient to maintain existing structures. This factor strongly relates to employment opportunities available, as well as the stability of existing employment. Other economic factors include: growth rate, trend of property values, supply and demand, marketing time for properties and land-use changes in evidence.

Social Factors. Area or location desirability is influenced by the many social characteristics of the occupants. Neighborhood desirability depends on the effort and money that neighborhood occupants put into the maintenance and modernization of buildings. Community support for the existing legal and political order is also a factor, since neighborhood attitudes can influence political decisions, such as the number of city services provided, tax rates and the quality of the schools.

Political Factors. The level of taxes, assessment fairness, police and fire protection and other city services provided, public education and protective zoning or planning all have an effect on neighborhood desirability. Governmental positions on air, soil and water pollution, job safety, social programs and noise, odor and ecological controls can also be noted. Many political factors are the result of social attitudes, whether regional or local.

Exhibit 2 presents a listing of data that appraisers typically consider in a market area, city, neighborhood and location analysis.

21. Land Description. Land that has been graded and prepared for a specific purpose is typically referred to as a site. A site has features that are classified as physical, locational, legal and economic. Land is immobile, and therefore it is significantly influenced by its surroundings. The value of land is a function of its ability to satisfy a market need. The value of the land is a function of its ability to serve as a site for either existing or proposed improvements. In addition, land value is determined by its highest and best use under current market conditions. The common factors that the appraiser should consider in the land description include size and shape, topography, frontage, drainage and water runoff, soil conditions, environmental conditions, site access and transportation patterns, visibility and neighboring property users.

22. Improvement Description. The next section of the appraisal is a description of the physical improvements. These improvements include any structure on the site as well as any improvements added to the site, such as parking lots, utility lines, storm drainage and landscaping. Each improvement has its own specific characteristics that should be analyzed by the appraiser. Structural improvements consist of a combination of physical components designed to serve a specific purpose. The typical factors included in the improvements description are listed below.

use
size
architectural style
construction type
site preparation and foundation
frame
floor structure
floor covering
ceiling
interior constructions
plumbing
sprinkler system
heating, ventilation, and air conditioning
electrical system
exterior walls
roof
insulation
special building features and additions
site improvements.

23. Zoning. Virtually all communities have zoning ordinances that control land use in their jurisdictions. Zoning ordinances vary widely from one community to another both in land-use classifications and methods of implementation.

24. Analysis of Highest and Best Use as if Vacant. The analysis and conclusion of the subject property highest and best use is a standard procedure in any real estate appraisal. Concluding highest and best use is not only a generally accepted procedure, it is a USPAP requirement. USPAP Standards Rule 1-3 provides the following instruction with regard to highest and best use:

When the value opinion to be developed is market value, and given the scope of work identified in accordance with Standards Rule 1-2(f), an appraiser must:
(a) identify and analyze the effect on use and value of existing land use regulations, reasonably probable modifications of such land use regulations, economic supply and demand, the physical adaptability of the real estate and market area trends and
(b) develop an opinion of the highest and best use of the real estate.⁷

In a highest and best-use analysis, the appraiser determines the property use that fulfills the following four tests:

physically possible,
legally permitted,
economically feasible, and
maximally productive.

The traditional procedure for determining highest and best use is to analyze the site as if vacant. In the "as if vacant" analysis, the present structures are disregarded in the highest and best-use analysis. However, the feasibility and cost of demolition and removal of existing structures should be noted. In this "as if vacant" analysis, the appraiser is following the "theory of consistent use." In other words, the site and the improvements will be valued based on the same use.

In bankruptcy appraisals, the most common method to estimate land value is the sales comparison method.

25. Analysis of Highest and Best Use as Improved. The appraiser first concludes highest and best use of the site as if vacant and ready for development. Next, the appraiser analyzes the highest and best use of the property as currently improved. The highest and best use of the property as improved is the use that results in the highest present property value. The present value is the present worth of all projected net cash flow discounted at a market-derived rate of return. If the value of the improvements, based on their highest and best use, is less than the value of the land, based on its highest and best use, minus the cost of demolition of the improvements, then the improvements would contribute no value. The highest and best use would be to remove the improvements.

26. Land Value. Land value can be a major component of total property value. Appraisers typically estimate land value separately, even when valuing properties with extensive improvements. The appraiser can use several methods to estimate land value, including:

sales comparison method
extraction method
allocation method
subdivision development method
land residual method
ground rent capitalization method.

In bankruptcy appraisals, the most common method to estimate land value is the sales comparison method. However, when few sales are available or when the value indications of the sales comparison method need additional support, the other land valuation methods may be used.

27. Cost Approach. The principal procedures in a cost-approach analysis are outlined as follows:

Estimate the highest and best use of the site. This initial procedure provides a basis for selecting comparable site sales. In addition, this procedure provides a basis for setting a benchmark against which accrued depreciation of the improvements is measured.
Estimate current dollar cost of either reproducing or replacing the subject improvements. In addition to direct costs and indirect costs, current cost estimate typically includes both a developer's profit and an entrepreneurial incentive based on local market evidence.
Estimate the total dollar amount of accrued depreciation from all causes. This total accrued depreciation typically includes three categories of depreciation: (1) physical deterioration, (2) functional obsolescence and (3) external obsolescence.
Subtract the dollar amount of total accrued depreciation from the estimate of the current reproduction or replacement cost new. This difference, if computed accurately, approximates the current value of the subject major improvements.
Estimate the replacement (or reproduction) cost new less depreciation for any minor buildings and other on-site improvements, such as landscaping, fencing and driveways. The key to this procedure is to estimate the value (rather than the cost) that these improvements add to the overall value of the property.
Add the site value to the depreciated cost of (1) the building major improvements and (2) the other on-site improvements. The resulting sum is the estimated value of the subject property via the cost approach.

In the estimation of current cost, all cost components should be considered. Total current construction costs (either reproduction or replacement) are often identified as direct and indirect costs. Direct costs are labor and materials (sometimes called "hard costs") and typically include:

labor hired by the general contractors and subcontractors
materials used, beginning with site clearance to the final cleanup
equipment, leased or owned
temporary electric service
developer's overhead and profit.

Indirect costs (sometimes called "soft costs") typically include:

professional service fees, including legal, appraisal, financial feasibility, engineering, architectural and surveying
construction and possibly permanent loan charges
property management commissions
project management fees
land lease rent, if appropriate
real estate taxes
project promotion charges
any other interim carrying costs.

The common construction cost-estimation methods include:

quantity survey method
unit-in-place construction method
comparative unit method
historical cost indexing method.

The appraisal report should also describe the analyses related to estimating depreciation. Accrued depreciation is typically defined as a loss in value from any cause. The three types of accrued depreciation follows:

physical deterioration
functional obsolescence
external obsolescence.

The bankruptcy appraisal report should distinguish the concept of cost from the concept of value. Cost is typically a measure of a past expenditure either of labor or materials or both. That is, cost represents a measure of past expenditures. Value, on the other hand, is influenced by the future. This is because value, by definition, constitutes the present worth of future rights and benefits. Therefore, cost is the amount of money necessary to acquire or to create an item, while value represents its worth.

28. Income Capitalization Approach. The income approach converts the property's expected income or cash flow into a present value. There are two categories of income capitalization methods: direct capitalization and yield capitalization. Direct-capitalization methods rely on direct-capitalization rates typically extracted from comparable sales. Yield-capitalization methods rely on yield-capitalization rates that are typically derived as the internal rate of return required by the typical investor.

Value estimates may be calculated by applying an appropriate multiplier or capitalization rate to the subject property's expected income or cash flow. The term "direct capitalization" is sometimes used to refer to the procedure of extracting income multipliers or capitalization rates from comparable sales. However, capitalization rates and income multipliers derived from comparable sales do not explicitly address profitability. Rather, they are simply observed ratios of income to value. However, such market-derived capitalization rates can provide reliable estimates of value if:

the expected cash flow is a representative income projection.
the income multiplier or capitalization rate is derived from comparable sales with the same potential for future income.

Common direct-capitalization multipliers or rates include (1) income multipliers such as potential gross income multiplier (PGIM), effective gross income multiplier (EGIM) and net income multiplier (NIM), and (2) several capitalization rates such as overall capitalization rate, land capitalization rate and building capitalization rate.

Property value is commonly estimated by dividing the one-period net operating income (NOI) by an overall capitalization rate. The rate is estimated by (1) extracting overall rates from comparable property sales, (2) comparing the comparable property attributes (physical, locational, financial) to the subject property and (3) selecting an appropriate overall rate. As with the PGIM, EGIM and NIM, an implied assumption is that the future performances of the comparable properties and the subject property will be similar.

Values are often estimated by projecting cash flow over a typical holding period and discounting the cash flow to a present value estimate using a discount rate. This valuation method is called yield capitalization (or a discounted cash-flow analysis). The discount rate directly addresses the expected profitability of the property. The cash flow components typically projected in a property tax appraisal are (1) NOI and (2) the net proceeds from the property resale. The discount rate is sometimes called the "property yield rate" or overall yield rate.

All income approach methods are categorized as either direct capitalization or yield capitalization. Direct capitalization uses a one-period measure of income or cash flow to estimate value. This procedure includes the use of income multipliers such as the potential gross-income multiplier, effective gross-income multiplier and net-income multiplier. This procedure also includes the use of capitalization rates such as the overall capitalization rate, the land capitalization rate and the building capitalization rate.

Yield capitalization requires a projection of the estimated future income of the project property. Value is estimated by discounting this income, including any proceeds from reversion, at an appropriate yield rate. A specific procedure of the yield capitalization method is the discounted cash-flow analysis. When estimating value using yield capitalization, the first-year NOI is explicitly estimated. The property income after the first year is either (1) explicitly estimated for each year of the investment holding period or (2) projected to change according to a particular mathematical process. Several common alternative property income patterns include: level income, compound change and straight-line change.

29. Sales Comparison Approach. The comparability of the selected sale transactions is typically the most controversial aspect of the sales-comparison approach analysis. Therefore, market-sale transactions should not be used unless the sale data have been confirmed by the appraiser or by a reliable delegate. This confirmation process should include inquiries into the circumstances causing the sale or affecting the transaction price. Price represents the amount paid for the real estate in terms of dollars. Before accepting the price as evidence of value, the appraiser should verify the transaction for the following conditions:

relationship of the parties
date of sale
financial terms of sale.

Another controversial issue in bankruptcy appraisals is the appraiser's adjustments to the comparable sales to account for differences between the comparable properties and the subject property. Any adjustments related to differences due to variations in age, size and quality of comparable vs. subject building construction should be identified and quantified in the appraisal report. Appraisers typically use either the detailed property-analysis method or the overall property-rating method to justify these market comparison adjustments:

Detailed Property Analysis Method. After confirming the sale prices and terms of sale with respective buyers, sellers or brokers, the appraiser will typically inspect comparable properties for size and details of construction. This allows the appraiser to make price adjustments to make each sale as comparable as possible to the subject property. However, the detailed property-analysis method is not frequently used in property tax appraisals.

Overall Property Rating Method. Under this method, market comparison is based on an overall judgment as to the percentage-value adjustment called for in order to make each sale comparable with the subject property. The overall percentage applied to each comparable property in turn is justified by the appraiser's explanation that the subject property is better, poorer or the same in relation to its construction as to type, size, features, age and building condition. By adjusting the comparable sale prices upward or downward in accordance with the characteristics of the subject property, a market-value estimate is derived.

For industrial/commercial properties, sale price adjustments are often made by the unit-comparison method based on one or more of the following:

price per square or cubic foot of building volume
price per square foot of net rentable area
price per apartment including land investment
price per room or price per floor
gross annual or monthly income multiplier
for special-purpose properties, for example: hospital, per bed; restaurant and theater, per seat.

For bankruptcy appraisals...it is much more common to conclude a point estimate as the final value opinion.

The sales-comparison approach is well adapted to situations where there are an adequate number of similar properties that have recently sold. In using these sales, appraisers attempt to verify each sale in order to confirm the relationship of the parties, date of sale and any financing terms. In analyzing comparable sales, it may be necessary to adjust a price if prices have changed between (1) the time the comparable property sold and (2) the subject appraisal date. Also, an adjustment is typically required if a comparable sale property's price was influenced by financing terms. The "cash-equivalency" method is often used to adjust for this price influence. The purpose of this adjustment is to reveal the price that a comparable property would have brought without the influence of atypical financing.

There are two methods to analyze comparable sale properties: (1) the detailed property-analysis method and (2) the overall property-rating method. The first method requires the appraiser to make a detailed analysis of all features in a property that influenced the price paid as well as transactional, location and time influences. The second method allows the appraiser to make an overall price adjustment to the comparable sale price. The overall property-rating method is most commonly used in bankruptcy appraisals.

30. Reconciliation and Opinion of Value. The final procedure is the reconciliation of the various value indications into final opinion of value. For appraisal performance for many purposes, it is reasonable to conclude a range of values as the final value opinion. For bankruptcy appraisals, however, it is much more common to conclude a point estimate as the final value opinion. The nature of the reconciliation procedure depends on (1) the purpose and objective of the appraisal, (2) the individual valuation approaches and methods used and (3) the appraiser's estimate of the reliability of each value indications derived.

When all three valuation approaches are used, the appraiser typically considers the relative dependability and applicability of each approach given the subject property type as well as the quantity and quality of data used. In the reconciliation section of the appraisal report, the appraiser may (1) explain variations among the value indications of the different approaches used and (2) account for differences between the value conclusions derived.

31. Estimate of Exposure Time. USPAP Statement on Appraisal Standards No. 6 (SMT-6) addresses the estimation of exposure time in real estate appraisals. USPAP Statements do not carry the weight of USPAP Standards Rules, so the consideration of exposure time is not a USPAP requirement. However, SMT-6 indicates that the analysis and conclusion
of exposure time is a recommended procedure:

Reasonable exposure time is one of a series of conditions in most market value definitions. Exposure time is always presumed to precede the effective date of the appraisal.
Exposure time may be defined as follows: the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective opinion based on an analysis of past events assuming a competitive and open market.⁸

The discussion of reasonable exposure time should appear in an appropriate section of the appraisal report, one that presents the discussion and analysis of market conditions, and also be referenced at the statement of the value definition and at the value conclusion.⁹

32. Professional Qualifications of the Appraiser. The statement of the professional qualifications should describe the appraiser's education and training, experience and expertise, and professional credentials and designations. For bankruptcy appraisals, this statement should emphasize the appraiser's experience in conducting bankruptcy appraisals and experience appraising properties like the subject property.

33. Addendum and Secondary Exhibits. This section of the appraisal report should include all maps, charts, graphs, photographs, exhibits, spreadsheets, financial statements, legal documents and other supplemental data not included in the narrative section of the report. It is a good idea to include a table of contents at the beginning of the addendum. This table of contents should list the contents of the appraisal report addendum.

Summary and Conclusion

This discussion, which summarized the typical components of a narrative real estate appraisal report prepared for bankruptcy purposes, may be used as a checklist or guideline by appraisers preparing the appraisal report, by bankruptcy parties-in-interest and their legal counsel in evaluating an appraisal report, and by the bankruptcy finder of fact in determining the degree of reliance to place on the expert witness appraisal report.