Appraisers may have to make some minor personal judgments when examining a property’s potential value, but they have less leeway than you may think. There are several factors that an appraiser must take into consideration. It’s important to realize that an appraiser’s job is to report a property’s value, not determine it. The factors that an appraiser looks for include those related to the property itself in addition to the surrounding environment.
The property’s individual characteristics are called elements of value, and they can be remembered using the acronym DUST. They are demand, utility, scarcity, and transferability. Demand is the same for an appraiser as it is for anyone else — the number of buyers who may be interested in the property. Utility looks at all of the property’s potential uses. Scarcity is similar to supply, but is specific to properties similar to the one in question. Transferability relates more to the seller than the property itself, and simply asks whether the seller is legally able to transfer the property.
The environmental factors include physical, economic, government, and social considerations, or PEGS. Physical considerations are the property’s proximity to various resources, such as public transportation or amenities, and even natural resources. Economic factors include data such as rents, vacancies, and homeownership rates, as well as employment opportunities. Among the government considerations are property taxes, zoning and building codes, and local government services. The social aspects are such things as crime rates, school ratings, and recreation.