REAL ESTATE VALUE
present monetary worth of benefits arising from ownership, including: income, appreciation, use, tax benefits
Foundations of
real estate value
anticipation, substitution, contribution, change, highest and best use, conformity, supply, demand, progression, regression, assemblage, subdivision, utility, transferability
Types of value
market, reproduction, replacement, salvage, plottage, assessed, condemned, depreciated, reversionary, appraised, rental, leasehold, insured, book, mortgage
Market value
price willing buyer and seller would agree on given: cash transaction, exposure, information, no pressure, arm's length, marketable title, no hidden influences
The appraisal and its uses
a professional's opinion of value, supported by data, regulated, following professional standards; used in real estate decision-making
Steps in the
appraisal process
define purpose, collect and analyze data, identify highest and best use, estimate land value, apply basic appraisal approaches, reconcile, compile report
SALES COMPARISON
APPROACH
most commonly used; relies on principles of substitution and contribution
Steps in the approach
compare sale prices, adjust comparables to account for differences with subject
Identifying
comparables
must be physically similar, in subject's vicinity, recently sold in arm's length sale
Adjusting comparables
deduct from comp if better than subject; add to comp if worse than subject
Weighting adjustments
best indicator has fewest and smallest adjustments, least net adjustment from the sale price
Broker's comparative
market analysis
abridged sales comparison approach by brokers and agents to find a price range
COST APPROACH
most often used for recently built properties and special-purpose buildings
Types of cost appraised
reproduction: precise duplicate; replacement: functional equivalent
Depreciation
loss of value from deterioration, or functional or economic obsolescence
Steps in the approach
land value plus depreciated reproduction or replacement cost of improvements
INCOME APPROACH
used for income properties and in a rental market with available rental data
Steps in the approach
value = NOI divided by the capitalization rate
GRM and GIM approach
GRM: price divided by monthly rent; value: GRM times monthly rent; GIM: price divided by gross annual income; value: GIM times annual income
Licensure
state-licensed or -certified per FIRREA/USPAP for federally-related appraisals
Professional standards
USPAP establishes appraisal standards, guidelines and provisions
Professional associations
and designations
founders of Appraisal Foundation offer education and professional designations