Appraising and Estimating Market Value

Real Estate Value

The present monetary worth of benefits arising from the ownership of real estate.

Primary Benefits that contribute to real estate value

income, appreciation, use and tax benefits

Appreciation

Increase in the market value of a parcel of land over time usually resulting from a general rise in the sale prices of real estate through the market area.

Balanced market

When supply and demand are equivalent

Supply and Demand

the availability of certain properties interacts with the strength of the demand for those properties to establish price. Affects property value.

Utility

Use in a certain marketplace. Not the same as function. Affects property value

Transferability

How readily or easily title or rights to real estate can be transferred. Affects property value.

Anticipation

The benefits a buyer expects to derive from a property over a holding period. Affects property value.

Substitution

a buyer will pay no more for a property than they would have to pay for an equally desirable and available substitute property. Affects property value.

Contribution

the degree to which a particular improvement affects market value of the overall property. It is what the market recognizes as the change in value, not what the item costs.

Diminishing marginal return

the cost to improve exceed contribution.

Highest and best use

a single use for a property that produces the greatest income and return. A property achieves its maximum value when it's put to this use.

Highest and best use

must be legally permissible, physically possible, financially feasible and maximally productive.

Conformity

a property's max value is attained when it's form and use are in tune with surrounding properties and uses.

Progression and regression

the value of a property influences and is influenced by the values of neighboring properties. Higher surrounding values causes your value to rise and vise versa.

Assemblage

the conjoining of adjacent properties, sometimes creates a combined value that is greater than the values of the individual properties.

Subdivision

The division of a single property into smaller properties resulting in a higher total value.

Determine the purpose

Step one in the appraisal. It influences the estimate of the value.

Market Value

Most used for single family appraisals. Estimates the price at which a property will sell at a particular time. Used in brokers estimates of value.

Reproduction value

value based on the cost of constructing a precise duplicate of the subject property's improvements, assuming current construction costs.

Replacement Value

value based on the cost of constructing a functional equivalent of the subject property's improvements assuming current construction costs.

Salvage Value

the nominal value of a property that has reached the end of it's economic life. Also an estimate of the price at which a structure will sell if it's dismantled and moved.

Plottage Value

an estimate of the value that the process of assemblage adds to the combined values of the assembled properties.

Assessed value

the value of a property as estimated by a taxing authority as the basis for taxation.

Condemned Value

the value set by a county or municipal authority for a property which may be taken by eminent domain.

Depreciated value

a value established by subtracting accumulated depreciation from the purchase price of a property.

Reversionated value

the estimated selling price of a property at some time in the future.

Appraised value

an appraiser's opinion of a property's value.

Rental value

an estimate of the rental rate a property can command for a specific period of time.

Leasehold value

an estimate of the market value of a lessee's interest in a property

Insured value

the face amount a casualty or hazard insurance policy will pay in case a property is rendered unusable.

Book value

the value as carried on the accounts of the owner. Equal to the acquisition price plus capital improvements minus accumulated depreciation.

Mortgage Value

the value of the property as collateral for a loan.

Market value

an opinion of the price that a willing seller and a willing buyer would probably agree on for a property at a given time. The highest a buyer would pay and the lowest a seller would accept.

Market price

what a property actually sells for.

Uniform Residential Appraisal Report

the most commonly used form for residential appraisals. Promoted by the Fed. ntl morgage assoc.(fannie Mae) and the Federal home loan mortgage corporation (Freddie Mac)

First step in the appraisal

Define the appraisal problem and purpose.

3 approaches used in appraisal

Sales comparison, cost approach, income capitalization.

Reconciliation

reconcile the value estimates produced by the three appraisal approaches to value into a final value estimate.

Appraisal

an opinion of value supported by data and performed by a professional, disinterested third party.

Sales Comparison Approach

Also market data approach. Used for almost all properties. Used as brokers opinion of value.

Sales Comparison Approach

Based on the principle of substitution (comps) and contribution (the specific characteristics that add value to the property).

Weighted comparables

appraiser must ID which comp values are more indicative of the subject and which are less. Experience and judgement.

Comparative Market Analysis (CMA)

used by a broker or salesperson in attempting to est a listing price. It's a scaled-down version of the appraisers sales comparison approach. It is NOT an appraisal.

Cost Approach

most often used for recently built properties where the actual costs of development and construction are known. Also used for special purpose buildings which can't be valued by other methods bc of lack of comps or income data. Estimates either reproductio

Reproduction cost

the cost of constructing, at current prices, a precise duplicate of the subjects improvements.

Replacement cost

the cost of constructing, at current prices and using current materials and methods a functional equivalent of the subject improvements. Primarily used for older structures.

Depreciation

the loss of value in an improvement over time. Does not apply to land!

Accrued Depreciation

the sum of depreciation from all causes: deterioration, obsolescence or changes in the neighborhood. (physical, deterioration, functional obsolescence and economic obsolescence.

economic life

the period during which the structure is expected to remain useful in its original use.

depreciation

the cost of the structure divided by it's economic life equals the annual amount of depreciation.

income capitalization approach

used for income properties. Based on anticpation (future income) and substitution (not paying more than other like properties)

Estimated POTENTIAL GROSS income

scheduled rent plus misc. income

Estimated EFFECTIVE GROSS income

potential gross income - vacancy and credit losses

Estimated Net Operating expenses

effective gross income - total operating expenses (fixed AND variable)

Capitalization Rate

an estimate of the rate of return an investor will demand on the the investment of capital in a property.

Value

Net operating income divided by the capitalization rate. I/R=

Gross Rent Multiplyer

from data using comps: price divided by MONTHLY RENT = ?

Gross Income Multiplyer

price divided by ANNUAL INCOME = ?

Financial Institutions Reform, Recovery and enforcement act (FIRREA)

Passed in 1989 in response to the savings and loan crises. Includes provisions to regulate appraisals. Fed. related appraisals must be performed by state certified appraisers.

Real Estate Value

The present monetary worth of benefits arising from the ownership of real estate.

Primary Benefits that contribute to real estate value

income, appreciation, use and tax benefits

Appreciation

Increase in the market value of a parcel of land over time usually resulting from a general rise in the sale prices of real estate through the market area.

Balanced market

When supply and demand are equivalent

Supply and Demand

the availability of certain properties interacts with the strength of the demand for those properties to establish price. Affects property value.

Utility

Use in a certain marketplace. Not the same as function. Affects property value

Transferability

How readily or easily title or rights to real estate can be transferred. Affects property value.

Anticipation

The benefits a buyer expects to derive from a property over a holding period. Affects property value.

Substitution

a buyer will pay no more for a property than they would have to pay for an equally desirable and available substitute property. Affects property value.

Contribution

the degree to which a particular improvement affects market value of the overall property. It is what the market recognizes as the change in value, not what the item costs.

Diminishing marginal return

the cost to improve exceed contribution.

Highest and best use

a single use for a property that produces the greatest income and return. A property achieves its maximum value when it's put to this use.

Highest and best use

must be legally permissible, physically possible, financially feasible and maximally productive.

Conformity

a property's max value is attained when it's form and use are in tune with surrounding properties and uses.

Progression and regression

the value of a property influences and is influenced by the values of neighboring properties. Higher surrounding values causes your value to rise and vise versa.

Assemblage

the conjoining of adjacent properties, sometimes creates a combined value that is greater than the values of the individual properties.

Subdivision

The division of a single property into smaller properties resulting in a higher total value.

Determine the purpose

Step one in the appraisal. It influences the estimate of the value.

Market Value

Most used for single family appraisals. Estimates the price at which a property will sell at a particular time. Used in brokers estimates of value.

Reproduction value

value based on the cost of constructing a precise duplicate of the subject property's improvements, assuming current construction costs.

Replacement Value

value based on the cost of constructing a functional equivalent of the subject property's improvements assuming current construction costs.

Salvage Value

the nominal value of a property that has reached the end of it's economic life. Also an estimate of the price at which a structure will sell if it's dismantled and moved.

Plottage Value

an estimate of the value that the process of assemblage adds to the combined values of the assembled properties.

Assessed value

the value of a property as estimated by a taxing authority as the basis for taxation.

Condemned Value

the value set by a county or municipal authority for a property which may be taken by eminent domain.

Depreciated value

a value established by subtracting accumulated depreciation from the purchase price of a property.

Reversionated value

the estimated selling price of a property at some time in the future.

Appraised value

an appraiser's opinion of a property's value.

Rental value

an estimate of the rental rate a property can command for a specific period of time.

Leasehold value

an estimate of the market value of a lessee's interest in a property

Insured value

the face amount a casualty or hazard insurance policy will pay in case a property is rendered unusable.

Book value

the value as carried on the accounts of the owner. Equal to the acquisition price plus capital improvements minus accumulated depreciation.

Mortgage Value

the value of the property as collateral for a loan.

Market value

an opinion of the price that a willing seller and a willing buyer would probably agree on for a property at a given time. The highest a buyer would pay and the lowest a seller would accept.

Market price

what a property actually sells for.

Uniform Residential Appraisal Report

the most commonly used form for residential appraisals. Promoted by the Fed. ntl morgage assoc.(fannie Mae) and the Federal home loan mortgage corporation (Freddie Mac)

First step in the appraisal

Define the appraisal problem and purpose.

3 approaches used in appraisal

Sales comparison, cost approach, income capitalization.

Reconciliation

reconcile the value estimates produced by the three appraisal approaches to value into a final value estimate.

Appraisal

an opinion of value supported by data and performed by a professional, disinterested third party.

Sales Comparison Approach

Also market data approach. Used for almost all properties. Used as brokers opinion of value.

Sales Comparison Approach

Based on the principle of substitution (comps) and contribution (the specific characteristics that add value to the property).

Weighted comparables

appraiser must ID which comp values are more indicative of the subject and which are less. Experience and judgement.

Comparative Market Analysis (CMA)

used by a broker or salesperson in attempting to est a listing price. It's a scaled-down version of the appraisers sales comparison approach. It is NOT an appraisal.

Cost Approach

most often used for recently built properties where the actual costs of development and construction are known. Also used for special purpose buildings which can't be valued by other methods bc of lack of comps or income data. Estimates either reproductio

Reproduction cost

the cost of constructing, at current prices, a precise duplicate of the subjects improvements.

Replacement cost

the cost of constructing, at current prices and using current materials and methods a functional equivalent of the subject improvements. Primarily used for older structures.

Depreciation

the loss of value in an improvement over time. Does not apply to land!

Accrued Depreciation

the sum of depreciation from all causes: deterioration, obsolescence or changes in the neighborhood. (physical, deterioration, functional obsolescence and economic obsolescence.

economic life

the period during which the structure is expected to remain useful in its original use.

depreciation

the cost of the structure divided by it's economic life equals the annual amount of depreciation.

income capitalization approach

used for income properties. Based on anticpation (future income) and substitution (not paying more than other like properties)

Estimated POTENTIAL GROSS income

scheduled rent plus misc. income

Estimated EFFECTIVE GROSS income

potential gross income - vacancy and credit losses

Estimated Net Operating expenses

effective gross income - total operating expenses (fixed AND variable)

Capitalization Rate

an estimate of the rate of return an investor will demand on the the investment of capital in a property.

Value

Net operating income divided by the capitalization rate. I/R=

Gross Rent Multiplyer

from data using comps: price divided by MONTHLY RENT = ?

Gross Income Multiplyer

price divided by ANNUAL INCOME = ?

Financial Institutions Reform, Recovery and enforcement act (FIRREA)

Passed in 1989 in response to the savings and loan crises. Includes provisions to regulate appraisals. Fed. related appraisals must be performed by state certified appraisers.