appraisal
is an estimate or opinion of value of a specific property as of a specific date.
Certified Residential Appraisers
usually appraise residential properties
Certified General Appraisers
usually appraise commercial properties
Fees
Appraisers are paid a fee and never a percentage of property value
North Carolina Appraisal Board
NC appraisers are licensed and certified through board after meeting minimum educational requirements and passing state examiniation
Comparative Market Analysis
Licensed real estate brokers are allowed to perform CMA, as long as they do not represent themselves as appraisers. Broker may receive a fee.
Broker Price Opinion
Use caution as this generally refers to an illegal appraisal. May provide a broker price opinion as a licensed broker, who is not also a licensed appraiser, only under the circumstances allowed for comparative market analysis. Broker may receive a fee.
Characteristics of Value
DUST
Demand-need or desire for possession or ownership backed by financial means to satisfy the need
Utility-capacity to satisfy future owners' needs and desires; how future owners can make good use of property
Scarcity-a finite supply
Transferability-the
Market Value
most probably price that a property will bring in a competitive and open market. Key points - most probably price, payment in cash or equivalent, act without undue pressure, reasonable length of time for property to be exposed in market, buyer and seller
Market Price
what the property actually sells for - sales price
Market Value versus Cost
Cost represents past expenditures on the property; market value is an opinion of value based on an analysis of data that may include analysis of comparable sales and/or analysis of potential income, expenses, and replacement cost. Cost does not always equ
Factors influencing property value
Social forces - trends in marriage, divorce rates, family size, longevity and desirability of social activities.
Economic forces-income and employment levels, rate of property taxation, current interest rates.
Political forces-government activities, zonin
Basic Economic Principals of Value
Highest and best use
Substitution
Supply and Demand
Conformity
Anticipation
Contribution
Competition
Change
Substitution
when several items with essentially the same amenities and utilities are available, the item with the lowest price will attract the most demand
Conformity
maximum value is realized if the use of the land conforms to existing neighborhood standards. "overbuilding the neighborhood
Anticipation
principle holds that value can increase or decrease in anticipation of some future benefit or detriment affecting the property.
Contribution
the value of any component of a property is defined by what its addition contributes to the value of the whole or what its absence detracts from that value. For example, the cost of installing an air conditioning system and remodeling an older office buil
Competition
principle states that profits tend to attract competition. Note: excess profits tends to attract ruinous competition
Change
no physical or economic condition remains constant. Real estate is subject to natural phenomena such as tornadoes, fires and routine wear and tear, real estate is subject to changing demands of the market.
Neighborhood Life Cycle
Four phases
Growth, stability, decline and renewal. The area's position within a life cycle will affect value.
Appraisal Methods
Sales Comparison Approach
Cost Approach
Income Capitalization Approach
Sales Comparison Approach
Also known as data approach. Estimate of value is obtained by comparing the subject property with recently sold comparable properties. Adjustments are made for dissimilar features. Four categories for adjustments: date of sale, location, physical features
Cost Approach
based on the principle of substitution which states that the maximum value of a property tends to be set by the cost of acquiring an equally desirable and valuable substitute property. Steps: estimate value of land as if it were vacant, estimate the curre
Reproduction or Replacement Cost
Square Foot Method - Cost per square foot of recently built comparable multiplied by number of square feet in building - most common method.
Unit in Place Method - replacement cost of structure is estimated based on the construction cost per unit of measu
Depreciation
refers to any condition that adversely affects the value of an improvement to real property
Physical deterioration - curable
Repairs that are physically possible and economically feasible. Routine maintenance
Physical deterioration - incurable
Repairs to major structural components of a building. Load bearing walls, foundation.
Functional obsolescence - curable
Physical or design features that are no longer considered desirable by property buyers but can be replaced or redesigned.
Plumbing fixtures
Functional obsolescence - incurable
Undesirable physical or design features that cannot be remedied easily. Five bedroom home with one bathroom.
Economic (environmental or external) obsolescence - incurable only
caused by factors outside the subject property. Proximity to a nuisance, polluting factory.
Methods of Depreciation
Age Life - effective age of building and its economic life
Straight Line - cost of an asset is depreciated evenly over it useful life
Economic Life - period during which it is expected to remain useful for its original intended purpose
Actual Life - perio
Effective Age
Multiplying economic life by the amount of depreciation
Special purpose properties
schools, churches, public buildings
Income Capitalization Approach
Also known as income approach. Based on the present worth of the future rights to income. Assumes that the income derived from the property will control the value of that property. Used for income producing properties.
Memory Tip - Income Approach
GIVEN
Gross Income-vacancy-expenses=Net Operating Income
Gross Rent Multiplier
GRM - relates to sales price of a property to its expected rental income. Sales price divided by rental income equals Gross Rent Multiplier
Reconciliation
(final reconciliation) art of analyzing and effectively weighing the findings from different approaches.