Appraisal, Valuation, and Market Analysis
Who may do what
Appraisers are licensed by TALCB and follow USPAP. A broker may prepare a comparative market analysis or a broker price opinion for a client, but it must never be labeled an appraisal, and a BPO cannot substitute for an appraisal where one is required (for example, GSE lending). Representing a value conclusion as an appraisal without an appraiser license is a violation.
The three approaches
Sales comparison carries the most weight for owner-occupied residential property. Cost approach: site value plus replacement cost minus depreciation, best for new construction and special-purpose property. Income approach: NOI ÷ cap rate = value, or GRM × monthly rent; used for 2–4 units and commercial. Reconciliation weights each approach by the reliability of its data.
Adjustments
Always adjust the comparable toward the subject. If the comparable is superior, subtract from the comparable's price; if inferior, add. Adjust for market conditions first (time), then for physical features. Large gross adjustments (roughly over 15–25%) suggest an unreliable comparable. Highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive. Depreciation is physical deterioration, functional obsolescence, or external (economic) obsolescence.
Traps
- Adjusting the subject instead of the comparable.
- Calling a CMA an appraisal.
- Using the cost approach as primary for an older home.
Rule of thumb
Adjusted price = comparable price + (subject − comparable) for each feature. Worked example - comp sold at $300,000 with no garage; subject has a $10,000 garage: add $10,000, adjusted value $310,000.