Appraisal
an unbiased estimate of the nature, quality, value, or utility of an interest in or aspect of identified real estate and related personalty as of a certain date
Steps in appraisal process
1. define problem & scope of work
2. collect, record, verify required data
3. determine property's highest & best use
4. estimate land value
5. use all 3 approaches to estimate value
6. reconcile the estimated values to determine final value estimate
7. c
2
# of classes of collected data
specific data
information about the subject property and comparables
general data
information about property location
highest & best use
use that is legally permissible, physically possible, financially feasible, maximally productive
sales comparison
most reliable method of estimating land value when comparable sales are available
direct sales comparison
sales of comparable vacant parcels are analyzed and adjusted to indicate a value for a subject land
allocation
a typical ratio of land value to total value derived from comparables and applied to subject
extraction
land value estimated by deducting the depreciated cost of improvements from total sale price of property
subdivision development analysis
costs & profit deducted from estimated gross sale prices of subdivided & finished lots, and net sales proceeds are discounted to present value
land residual
net operating income attributable to land is capitalized at market rates to obtain land value
ground rent capitalization
ground rent of subject is capitalized at market rates
cost approach to value
appraiser estimates property's value by adding the land value to the depreciated value of any improvements to the property
replacement cost
cost associated with buying a replacement copy
reproduction cost
expense of reproducing an exact copy of the item
replacement cost
costs of building a house or other improvement from the ground up and having the same utility as the one being valued but with new materials and design
reproduction cost
duplicating the design, materials, and craftsmanship of the original improvement as closely as possible
cost approach
good for special use properties but not reliable for valuing older structures
income approach
used by appraisers to value commercial and investment properties
Uniform Residential Appraisal Report
URAR
how the income approach works
capitalizes a single year's income or discounts a projected income stream to derive an indication of the property's value
forms appraisal reports can take
short- or long-form narrative reports, form reports, letter or oral reports
valuation
process of estimating the value of an identified interest in specific property as of a given date
investment value
amount of ROI an income-producing property will produce
insured value
face amount a casualty or hazard insurance policy will pay in case a property is deemed unusable
use value (value-in-use)
value the property holds for the owners
factors contributing to use value
income, appreciation, use, tax benefits
mortgage value
value the lender places on a property as collateral for the loan
exchange value
value that results from comparing the property to similar properties on the open market
salvage value
nominal value of a property that has reached the end of its economic life
assessed value
value of a property as estimated by a taxing authority as the basis for ad valorem taxation
condemned value
value set by a county or municipal authority for a property which may be taken by eminent domain
depreciated value
value established by subtracting accumulated depreciation from the purchase price of a property
rental value
estimate of the rental rate a property can command for a specific period of time
evaluation
a study of the nature, quality, or utility of certain property interests in which a value estimate is not necessarily required
anticipation
benefits a buyer expects to receive over the period of time he or she has the property
assemblage
two adjacent pieces of property join together for a combined value that is greater than the value of the two separately
plottage value
extra value created by merging two parcels
12 principles of value
anticipation, assemblage, change, conformity, competition, contribution, diminishing return, highest and best use, progression and regression, substitution, supply and demand, market value
conformity
property at highest value when it conforms with and fits into its surroundings
competition
businesses of a similar type together may make more money than they would individually
contribution
what the market recognizes as the change in value an improvement makes to a property rather than what the improvement actually cost
diminishing return
continuing to add improvements when improvements will have no effect on increasing the value of the property
substitution
a buyer won't pay more for a home than what they would pay for an equally attractive and available home
market value
opinion of the value based on analyzing data collected about the property
market price
the actual sales price
two types of cost
direct and indirect
direct/hard costs
labor and material costs
indirect costs
various support costs
vacancy loss
income lost because of space not rented
credit loss
result of tenants not paying rent
fixed expenses
expenses not affected by presence or absence of renters
variable expenses
actual operating expenses like utilities and repairs
capitalization rate
rate of return an investor will require on his or her investment of capital in this kind of property
value formula in income approach
net operating income/capitalization rate
goes up
as capitalization rate goes down, the value
gross rent multiplier (GRM)
sales price/gross rent
estimated value
monthly rent x GRM
FIRREA (of 1989)
Financial Institutions Reform, Recovery and Enforcement Act
Texas Appraiser Licensing and Certification Board
TALCB (founded 1991)
Uniform Standards of Professional Appraisal Practice
USPAP
5 levels of real property appraisal
appraiser trainee,
provisional licensed real estate appraiser, licensed real estate appraiser, certified residential real estate appraiser, and certified general real estate appraiser