What is actually inside a real appraisal
Most people buy their first appraisal without knowing what a good one looks like, which makes it very hard to tell one from a printout with a number on it. Here is every section, what it does, and what a reviewer will look for — whether we wrote it or somebody else did.
Why publish this
Because an informed client is easier to serve, and because the parts of a report that make it defensible are invisible to someone who does not know to look for them. If you read this page and then read a competitor’s report and it holds up — hire them. That is a fine outcome. The bad outcome is paying for a document that fails when it is finally tested, which is usually years later and always at the worst moment.
Sixteen parts, and every one of them does work
Not all of them appear in every report — highest and best use is a real property concept, and a securities valuation has no photographs. But nothing here is filler.
Letter of transmittal
Who engaged us, what was valued, the effective date, the value conclusion, and the signature.
Read the effective date first, then the signature. If the date is not the date you need, nothing else in the document matters. If the person who signed it is not the person who did the work, ask why.
Identification of the client and intended users
Named. Not “whoever holds this document.”
This is the section people skip and lawyers read first. An appraisal is written for identified users and a stated use; a lender cannot simply pick up a report written for an estate. If your name or your matter is not here, you may not be entitled to rely on it.
Intended use
The specific purpose — IRS charitable donation, estate tax, marital dissolution, insurance scheduling, a lending decision.
The intended use drives the scope of work, which drives the fee. It is also the reason a report cannot be quietly repurposed: a report developed for insurance replacement cost is not a fair market value opinion, however similar the number looks.
Definition of value, with its source
Fair market value, market value, fair value, replacement cost, liquidation value — quoted, with the authority it comes from.
These are not synonyms and they do not produce the same number. Fair market value for federal tax purposes has a specific regulatory definition. If a report says “value” without defining it, you cannot tell what you have bought.
Effective date and date of report
Two dates. They are frequently not the same, and both must be stated.
Where the effective date precedes the report date, the assignment is retrospective and the analysis has to reconstruct the market as it stood — not describe today’s and back-date the label.
Scope of work
What was inspected, what was researched, what was verified, and what was not.
The most honest section in any appraisal, and the first place an opposing expert looks. A narrow scope is not a defect if it is disclosed and appropriate. An undisclosed narrow scope is a serious one.
Description of the property appraised
Enough detail that someone unfamiliar with the property could identify it from the report alone. Condition, for real and tangible personal property.
For an IRS qualified appraisal this is a regulatory requirement, not a courtesy — the description has to let a reader who does not know the property confirm that the thing appraised is the thing donated.
Assumptions and limiting conditions
What we assumed rather than verified, and any hypothetical condition or extraordinary assumption we were instructed to adopt.
Extraordinary assumptions are legitimate and sometimes necessary. What matters is that they are disclosed prominently, because if one turns out to be wrong the conclusion may change.
Highest and best use where applicable
For real property: the legally permissible, physically possible, financially feasible and maximally productive use.
It is a four-part test applied in order, and skipping it is how a vacant parcel gets valued as though its zoning were something it is not.
Approaches to value, and why
Sales comparison, cost, and income — each either applied or excluded, with the reason stated.
Excluding an approach is normal. Excluding one silently is not. The reason has to be in the report so a reviewer can test it.
Market data and analysis
The comparables, the adjustments, the reasoning, and the sources.
Every number should be traceable to something. When an examiner or an opposing expert asks where a figure came from, “the owner told me” is a weak answer and a cited transaction is not.
Reconciliation
How the indications from the different approaches were weighed into a single conclusion.
Averaging is not reconciliation. The report should say which indication was given most weight and why — that judgment is the thing you are actually paying for.
Value conclusion
The number, the date it applies to, and the value definition it satisfies.
A conclusion without its date and definition attached is a number, not an opinion of value.
Certification
The signed statement required of the appraiser.
It states, among other things, that the compensation is not contingent on the value reported, that the appraiser has no present or prospective interest in the property, and who provided significant professional assistance. In IRS work it also carries the §6695A penalty declaration — the appraiser’s own money behind the number.
Qualifications of the appraiser
Licence or designation, education, experience with this property type.
For an IRS qualified appraisal the regulation requires the appraiser to state their education and experience valuing this type of property in the appraisal, and to declare that those qualify them for it. A CV stapled to the back is not the same thing.
Addenda where applicable
Photographs, the item schedule, licences, source documents, engagement terms.
For personal property and equipment this is often the bulk of the document, and it is what makes the report usable years later when nobody remembers the assets.
Ten things that should stop you
Any one of these is worth a question. Several together mean the document will not survive being tested, and you should find out now rather than in a deposition.
Every valuation is as of a moment. If nobody chose the moment deliberately, nobody thought about it.
“For any purpose” means it was developed for none of them.
You cannot tell whether you are holding fair market value, replacement cost, or someone’s idea of what the thing is worth.
Prohibited under USPAP, and it disqualifies the appraisal for IRS purposes outright. It also tells you exactly which direction the number was pushed.
A buyer has an interest in your number being low. That conflict is precisely what makes a report indefensible.
An opinion with no evidence behind it is an assertion. It will not survive a competent challenge.
The certification is not boilerplate. It is the part that makes the rest enforceable.
Ask who inspected, who researched, and who reached the conclusion. If those are different people from the signer, that has to be disclosed.
The instructions expressly forbid it, and it can cost the deduction on its own.
Length is not quality — but a defensible inventory valuation cannot be done without an inventory.
Report options, and what they cost you
USPAP permits more than one report format, and the choice is a real one. It is worth understanding, because a cheaper format is sometimes exactly right and sometimes a trap.
Appraisal report
The full document: scope of work, the analysis, the data, the reasoning, and the support. This is what you want when anyone other than you will read it — the IRS, a court, an opposing expert, an adjuster, a lender.
Use it when the report leaves your hands.
Restricted appraisal report
A condensed document for a single named client, with the rationale held in the workfile rather than set out in the report. It is legitimate, disclosed, and cheaper — but it may not be used by anyone other than that one client, and it is not suitable where a third party has to be persuaded.
Do not use it for tax filings, litigation, or anything a stranger must rely on.
The expensive mistake is not overpaying for a full report. It is buying a restricted report, or a broker’s opinion, or a dealer’s letter, for a purpose that required a full appraisal — and finding out after the filing deadline, or after the deduction is challenged, or on the morning of trial.
We will tell you which one your matter needs before you engage us, and we will tell you when the answer is that you do not need us at all.
The workfile
Behind every report there is a workfile: the data, the notes, the correspondence, the analysis that did not make it into the document. USPAP requires it to be retained, and it is what makes a report auditable years later. In litigation it is frequently subpoenaed.
Which is a useful thing to know when you are choosing an appraiser. Ask what the workfile will contain and how long it is kept. Someone who has not thought about the question has not been tested.
Common questions about reports
Can I use one appraisal for two purposes?
Sometimes, but not by assumption. The intended use is stated in the report and drives the scope of work, so a report developed for insurance scheduling is not automatically usable for a charitable deduction. Tell us all the intended uses at the outset and we will develop it once, properly, for all of them — which is far cheaper than discovering later that it only works for one.
Why does the report say it cannot be relied on by anyone else?
Because an appraisal is developed for identified users and a stated use. Extending reliance to a party whose needs were never considered would be unsupportable. If another party needs to rely on it, tell us and we will add them properly.
What is an extraordinary assumption?
Something we assume to be true, that is directly related to the assignment, that affects the conclusion, and that we could not verify. Assuming a roof was replaced when the owner says so but no permit exists, for example. It is disclosed prominently, and the report states that if it proves false the conclusion may change.
Is a longer report a better report?
No. Length correlates with the complexity of the problem, not the quality of the work. What matters is whether the scope of work was appropriate and disclosed, and whether the conclusion is supported. A tight twenty-page report on a single item can be far better than ninety pages of template.
Who signs your reports?
Jeremy C. Johnson signs every report. If anyone provides significant professional assistance on an assignment, that is disclosed in the certification, which is what USPAP requires. You will never receive a report signed by someone who did not do the work.
Want to know whether your matter needs a full report?
Tell us the purpose and who has to read it. That conversation is free, and it sometimes ends with us telling you that a full appraisal is not what you need.