Appraisal
The preparation of an estimate or opinion of value
Value
The worth, usefulness, or utility of an object to someone for some purpose.
Market Value
What the typical buyer would pay. The most probable selling price of a property in a competitive and open market.
Formal Appraisal
A means of reaching an opinion of value by the methodical collection and analysis of relevant market data.
Informal Appraisal
Uses intuition, past experience, and general knowledge without factual data and material.
What does a formal appraisal involve?
A value conclusion that is based on an analysis of factual material that a client or disinterested party can easily review the resulting report and understand how the conclusion was reached.
Two important functions appraisals serve in our society
1. To assist the public by advising them on questions of property value.
2. Provide an unbiased independent and disinterested opinion of value, where total objectivity is required by business practice or by provision of law.
Market Transactions
Transactions occurring in a market setting.
Two categories of occasions requiring appraisals
Market Transactions
Legal Transactions
Highest and best use
The most profitable use of the land.
Legal Transactions
Various government actions involving real estate, and those private actions that take place in legal settings or are otherwise regulated by law.
Two main types of government action requiring appraisals
Eminent Domain
Property Taxation
Eminent Domain
The right to acquire private property for a public purpose.
Property Taxation
The right of government to impose a tax based on the ownership or possession of property, usually calculated as a percent of value, but sometimes per unit, per square foot, or other physical measurement.
Ethical obligations USPAP imposes on appraisers
Conduct
Management
Confidentiality
Ethical rule on business management
Prohibits the payment of any undisclosed fees, commissions, or things of value in connections with the procurement of an assignment.
Ethical rule on conduct
requires that the appraiser perform all assignments ethically and competently.
Ethical rule on confidentiality
requires the appraiser not reveal confidential factual data obtained from the client or the results of an assignment to ANYONE other than:
1. the client and those they authorize
2. state licensing agencies and 3rd parties authorized by law
3. duly authori
Four additional rules imposed by USPAP
Record Keeping Rule
Competency Rule
Scope of Work Rule
Jurisdictional Exception Rule
Explain the Record Keeping Rule
Must maintain your work file for a minimum of five years after preparation and at lest two years after final disposition of any judicial proceedings.
Explain the Competency Rule
Requires that appraisers accept only that work which they have the experience necessary to perform.
What two types of competency are required for a formal appraisal?
To be geographically competent and property type competent.
Explain the Scope of Work Rule
1. Identify the problem to be solved;
2. Determine and perform the scope of work necessary to develop credible assignment results;
3. Disclose the scope of work in the report.
USPAP's Standards of Practice
Development of the appraisal
Reporting the results, it cannot be misleading
Explain the Jurisdictional Exception Rule
If any applicable law or regulation precluded compliance with any part of USPAP, only that part should be void for that assignment.
USPAP standards must be adhered to by state licensed and certified appraisers when performing and reporting appraisals of real estate except when:
The appraiser is allowed by law or regulation not to comply.
Property
Consists of rights that have value, or valuable rights held to the exclusion of others.
Bundle of Rights (DOSBLT)
Do nothing with property
Occupy property
Sell property
Bequeath property
Lease property
Transfer property
Tangible property
Physical objects and/or the rights thereto.
intangible property
Rights to something other than physical property.
What does Real Property generally refer to?
The land and everything that is permanently fastened to the land.
What does personal property refer to?
(Chattel) consists of property that is movable, or more accurately, it refers to call property that is not real property.
The Law of Fixtures (MARIA)
1. Method of Annexation
2. Adaptability
3. Relationship
4. Intent
5. Agreements
Method of annexation test
How permanently is the personal property attached to the land and building?
Adaptability test
How uniquely adapted is the personal property to be used with the land?
Relationship test
What's the relationship b/w the person putting in the personal property and any other person with a claim to the real estate?
Intent test
What's the intention of the person incorporating the personal property into the land?
Agreement test
Is there an agreement between the parties involved that defines ownership of the personal property and whether it's to be considered real estate?
What is the highest form of ownership one can have in real property?
Fee simple or fee simple absolute estate- full bundle of rights.
What is a life estate?
The right to live on the property or control its occupancy during the lifetime of the named person.
Government restrictions on the use of property
1. Police Power
2. Power of eminent domain
3. Power of taxation
4. Power of escheat -dying intestate
An example of a government police power control
Air and water pollution controls
Criteria for highest and best use
Is it legally permissible?
Is it physically feasible?
Is it financially feasible?
Is it the most profitable/ productive?
Three basic types of legal descriptions
1. recorded lot, block & tract
2. metes & bounds
3. government survey
How many square miles in a township?
36 square miles
How many sections are in a township?
36. each section is 1 square mile in each direction or 640 acres.
Requirements for a valid contract
1. competent parties
2. a subject
3. legal consideration
4. mutual obligation
5. obligation of both parties to comply
The four steps in the appraisal process
1. Identify the appraisal problem
2. Identify the appropriate solutions:scope of work
3. Execute the appropriate scope of work
4. Report findings and conclusions
What are the two types of reports in USPAP?
appraisal report
restricted appraisal report
What's an extraordinary assumption?
an assumption directly related to a specific assignment, as of the effective date of the assignment results, which, if found to be false, could alter the appraiser's opinions and conclusions. SNOW ON ROOF
What's a hypothetical condition?
a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.
The classical approaches to value
Sales Comparison
Cost Approach
Income Approach
The sales comparison approach
also known as the market or direct comparison approach, is the most direct of the three approaches and often the most reliable.
The cost approach
is based on the principle that property is worth what it would cost in money to replace the improvements as of the date of value
The income approach
used to appraise commercial, industrial, and residential income properties to reflect their ability to produce income.
What are the four stages of a neighborhood?
Growth- development phase
stability-stable phase
decline-decline phase
rejuvenation-renaissance phase
What is the economic base of a town?
export production
What are the criteria for a perfect market?
1. numerous buyers & sellers
2. all parties are knowledgeable
3. all parties are free to trade or not
4. all products are similar and interchangeable
5. all products can be transported to better markets
6. items are small, inexpensive, and frequently purc
What is a perfect market?
It's a standard against which all other types of markets are compared.
What three parts can market behavior be divided into?
1. price levels
2. price trends or movement
3. levels or volume of market activity
Four essential elements of value (DUST)
Demand
Utility
Scarcity
Transferability
Biggest economic force
money and credit, availability and interest rate levels
Principles of Real Estate Marketability
Based on the six principals of:
Substitution
Conformity
Progression and Regression
Change
Supply and Demand
Competition
The Agents of Production
Labor
Coordination
Capital
Land
Principal of Anticipation
the uses and purposes to which a property may be put is concerned with the future use and not just the previous or current use
Political forces affecting value includes
educational and recreation facilities
What does UAD stand for?
Uniform Appraisal Dataset
Two alternative use assumptions
the highest & best use of the land as if vacant
the highest & best use of the property as improved
What does assemblage mean
when a size of a parcel limits its utility, two or more small sites can be combined to create the desired size parcel. Any increase in the unit or square foot value that results is called plottage value.
Frontage
the boundary or lot side that faces or is adjacent to a street or highway
Depth
the length from the street back
What is the square footage size
43560
Trapezoid area formula
area = [(side 1 + side 2) x height]/2
Forces influencing value
Physical
Economical
Governmental/political
Social
PEGS
Forces influencing value
DOSBLT
Bundle of rights
DUST
Essential elements of value
MARIA
Law of fixtures
Effective age
The relative age of a structure considering its physical condition and marketability
Direct sales approach
The simplest and most direct approach
3 criteria for a comparable sale
A competitive property
An open-market transaction
Sale occurred close in time to date of value
Competitive property
Is a reasonable substitute or alternative for a potential purchaser who is or was working at the subject property
Two ways to improve data reliability
Inspect the sales
Cross-check data obtained by another source
The sales comparison approach is often simpler and more direct than the income or cost approaches because
There are fewer mathematical calculations so there is less chance of mathematical errors
To use the unit of comparison adjustment
Select an important property variable