Appraisal Procedures

1
Section 1

• Appraisal Procedures

2
Learning Objectives

• Identify the appraisal process
• Define an appraisal
• Describe the process within the competency rule
• Recognize the difference between an appraisal, an
  appraisal review, and an appraisal consulting
  assignment

3
Learning Objectives

• Understand the similarity of the appraisal
  process in all assignments
• Differentiate between development and reporting
• Recognize the steps in the appraisal process
• Comprehend the various processes within the
  appraisal process
• Understand the process of scope of work

4
Learning Objectives

• Understand the process of managing an assignment
• Understand the process of market analysis
• Understand the process of highest and best use
• Identify the approaches to value
• Understand the process of reconciliation

5
The Appraisal Process

• Different Definitions of Appraisal
• Series of Processes within The Appraisal Process
• Standard of Practice
• Competency
• Competency Rule
• Competency Decision
• Questions after the Engagement Process

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The Appraisal Process

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The Appraisal Process

• Problem Identification
• Competency Rule
• Assignment Elements
• Scope of Work
• Determine
• Confirm
• Perform
• Disclose

8
The Appraisal Process

• Manage the Assignment
• Plan
• Organize
• Staff
• Direct
• Control

9
The Appraisal Process

• Data Collection, Verification, and Market
  Analysis
• Specific Data
• Primary Data
• General Data
• Secondary Data
• Market Analysis

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The Appraisal Process

• Highest and Best Use
• Physically possible
• Legally permissible
• Financially feasible
• Maximally productive
• Land Value

11
The Appraisal Process

• The Approaches to Value
• Income Approach
• Cost Approach
• Sales Comparison Approach
• Reconciliation
• Communication of the Results

12
Scope Of Work

• The Process of Scope of Work
• Determine the ScopePreliminary Determination
• Confirm the ScopeConfirmed Determination
• Perform the Scope
• Disclose the Scope
• Acceptability of Scope of Work/Due Diligence
• Reasonable expectations of the client
• Peers performance of assignment

13
Market Analysis

• Definition
• Study Process
• Market Conditions
• Market Analysis and the Appraisal Process
• Data Analysis
• Two Basic Functions of Market Analysis
• Provide relevant data for completion of HBU
• Provide relevant data completing the three
  approaches to value
• Market Analysis and Highest and Best Use

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The Market Analysis Process

• Step 1 Productivity Analysis
• Step 2 Define the Market and Users
• Step 3 Demand Analysis
• Step 4 Supply Analysis
• Step 5 Analyze Interaction between Supply and
  Demand
• Step 6 Forecast (Market Penetration)

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Types Of Analysis

• Economic Base Analysis
• Market Study
• Marketability Study
• Investment Analysis
• Feasibility Analysis

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Highest and Best Use

• As if Vacant
• As if Improved
• Identify comparables
• Property management
• Maintain
• Renovate, convert, or modify
• Repair
• Demolish

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4 Test of Highest and Best Use

• Physically Possible
• Legally Permissible
• Financially Feasible
• Maximally Productive

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The Process of Reconciliation

• Consider the Relevant Facts
• Determine How the Facts Match Up
• Reach Conclusions
• Disclose the Reasoning

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Section 2

• Analytical Techniques

20
Learning Objectives

• Understand the difference between population and
  sample
• Understand measures of central tendency
• Calculate the mean, median, and mode of an array
  of numbers
• Understand measures of variability
• Calculate range, variance, and standard deviation
  
• Calculate weighted averages

21
Learning Objectives

• Understand the financial principal of time value
  of money
• Distinguish between simple interest and compound
  interest
• Understand each of the six functions of a dollar
• Use the various methods to compute the six
  functions of a dollar
• Calculate a mortgage payment

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Statistics Overview

• Statistics
• Population
• Parameter
• Sample
• Statistic

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Measures of Central Tendency

• Mean
• Median
• Mode
• Selecting a Measure of Central Tendency

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Mean, Median Mode example

• Determine the mean, median, and mode of the
  following data set
• 310, 245, 275, 112, 93, 245
• Array 93, 112, 245, 245, 275, 310
• Mean (93 112 245 245 275 310) ? 6
  213.3
• Median (245 245) ? 2 245
• Mode 245

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Measures of Variability

• Range
• Difference between highest and lowest number of
  a data set
• Variance
• Variance (sum of square of the deviations from
  the mean) ? (total observations 1)
• Standard Deviation
• Square root of Variance

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Range, Variance, Standard Deviation Example

• Array 24, 26, 31
• Range 31 24 7
• Mean (24 26 31) ? 3 27
• Variance (24 27)2 (-3)2 9
• (26 27)2 (-1)2 1
• (31 27)2 (4)2 16
• 9 1 16 26
• 26 ? 2 13
• Standard Deviation Square root of 13
• ?13 3.61

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Weighted Average

• Multiply element by its weight
• Add up products
• Add up weights
• Divide total of products by total weight

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Mathematics of Finance

• Time Value of Money
• Simple Interestno accrued interest
• Compound Interestaccrued interest
• Compounding
• Discounting

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Six Functions of a Dollar

• Compound Factors and Discount Factors
• Future Value of 1
• Future Value of 1 per Period
• Sinking Fund Factor
• Present Value of 1
• Present Value of 1 per Period
• Payment to Amortize 1

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Mathematics of Finance

• Calculating a Mortgage Payment
• Financial Calculators

31
Section 3

• An Overview ofthe Approaches to Value

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Learning Objectives

• Perform all necessary calculations within the
  three approaches to value
• Understand the relationship between the three
  approaches
• Understand land/site valuation techniques
• Understand the process of each approach to value
• Understand the strengths and limitations of each
  valuation approach
• Understand reconciliation within each approach

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Learning Objectives

• Understand how to reconcile between the
  approaches
• Define a unit of comparison
• Define an element of comparison
• Recognize the difference between quantitative and
  qualitative adjustments
• Understand the sequence of adjustments
• Distinguish between percentage adjustments and
  lump sum adjustments

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The Sales Comparison Approach

• Elements of Comparison
• Property Rights Conveyed
• Financing
• Conditions of Sale
• Marketing Conditions (Time)
• Location
• Physical Characteristics

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Methodized Process of the Sales Comparison
Approach

• Research Relevant Sales Data
• Verification
• Choosing Relevant Units of Comparison
• Adjustments
• Reconciliation

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Sales Comparison Approach

• Making Adjustments
• Sales Grid
• Extracting Adjustments
• Net Adjustments

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The Cost Approach
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The Cost Approach

• Replacement Cost New/Reproduction Cost New (RCN)
• Methods of Cost Analysis
• Cost Index Method
• Square Foot Method
• Unit-In-Place Method
• Quantity Survey Method

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Accrued Depreciation

• Depreciated Cost of the Improvements
• Physical Depreciation
• Incurable
• Curable
• Obsolescence
• Functional
• External

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Methods of Depreciation

• Economic Age-Life Method
• Modified Economic Age-Life Method
• The Breakdown Method
• Straight-Line Depreciation Method
• Market Method of Depreciation

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Land or Site Valuation Techniques

• Sales Comparison Method
• Allocation Method
• Extraction Method or Abstraction Method
• Subdivision Development Method
• Ground Rent Capitalization Method
• Land Residual Method

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The Income Approach

• Net Operating Income (NOI)
• Potential Gross Income (PGI)
• Vacancy Collection Loss
• Effective Gross Income (EGI)
• Operation Expenses
• Net Operating Income (NOI)
• Potential Gross Income
• Vacancy and Collection Loss
• Effective Gross Income
• Operating Expenses

43
Direct Capitalization Relationships

44
Income Multiplier Method

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Section 4

• Land or Site Valuation Techniques

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Learning Objectives

• Identify the six land or site valuation
  techniques
• Value land or site using all six valuation
  techniques
• Understand the sequence of adjustments
• Distinguish between percentage adjustments and
  lump sum adjustments

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Sales Comparison MethodElements of Comparison

• Property Rights Conveyed
• Financing
• Payment in Cash or Cash Equivalency
• Unaffected by Special Financing or Sales
  Concessions

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Sales Comparison MethodElements of Comparison

• Conditions of Sale
• Comparable Sales where buyer and seller are
  typically motivated, well-informed and acting in
  best interests
• Marketing Conditions (Time)
• Sale Dates of Comparables
• Value Affected by Other Recent Market Changes

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Sales Comparison Method Elements of Comparison

• Location
• Same Neighborhood
• Account for Differences in Location
• Physical Characteristics
• Size
• Shape
• Terrain

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Sales Comparison Method Elements of Comparison

• Zoning and Land-Use Restrictions
• Public Restrictions
• Private Restrictions
• Availability, Capacity, and Proximity of
  Utilities
• Undeveloped land
• Site

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Sales Comparison MethodAdjustment Process

• Extract Adjustments with Paired Sales Analysis
• Apply Adjustments to Comparable
• Unit of Comparison Sales Price Element of
  Comparison

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Sales Comparison Method Adjustment Process

• Order of Percentage Adjustments
• Property Rights Conveyed
• Financing
• Conditions of Sale
• Marketing Conditions (Time)
• Lump-Sum Dollar Adjustments

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Sales Comparison MethodReconciliation

• Weighting Process
• Value Range before and After Adjustments
• Sales Grid and Market Data Grid

54
Allocation Method

• Based on the Principal of Balance
• Proportional Relationship between Land Value and
  Total Property Value
• Ratio of Land to Building
• Method Used Only to Support Land Values from
  Other Techniques

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Extraction or Abstraction Method

• Subtraction of Depreciated Improvement Costs from
  Comparable
• Formula
• Replacement/Reproduction Cost New (RCN)
• Accrued Depreciation
• Depreciated Cost of Improvements
• Indicated Value (Sales Price)
• Depreciated Cost of Improvements
• Land (site) Value

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Extraction or Abstraction Method

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Subdivision Development Method

• Subtraction of the Costs of Development and
  Subdivision from Expected Sale Prices
• Valuing Land in Transition from One Use to
  Another
• Direct Sales of Similar Uses Not Available

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Subdivision Development Method

• Principle of Anticipation Fundamental to Method
• Absorption Rate
• Discounting Present Value of a Future Benefit

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Ground Rent Capitalization Method

• Ground Lease Involved
• Capitalization of Income from Ground Lease

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Ground Rent Capitalization Method

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Land Residual Method

• Deduction of Buildings Net Income from
  Propertys Total Net Income
• Capitalization of Net Income

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Section 5

• Property Description

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Learning Objectives

• Be familiar with basic real property concepts
• Understand real property characteristics
• Identify the significance of land in real estate
• Demonstrate familiarity with how various
  disciplines view the concept of land
• Define an estate
• Identify the characteristics of land

64
Learning Objectives

• Understand the geological characteristics of land
  
• Identify the difference between land and site
• Understand what delineates a neighborhood
• Understand architectural styles
• Understand colloquialism
• Identify construction types, main components of
  construction, and the styles of construction

65
Land/Site Geological and Geographical
Characteristics

• Land
• Real Estate and Real Property
• Surface, Subsurface, Air, and Water Rights
• Surface and Subsurface (Mineral) Rights
• Air Rights (Within Limitations)
• Water Rights (Riparian and Littoral)

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Land Definition

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Land vs. Site

• Raw Land
• Site
• Vacant Land
• Land Analysis
• Land Description

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Physical Characteristics of Land/Site

• Size and Shape
• Excess Land
• Surplus Land
• Site Improvements
• Internal (On-site)
• External (Off-site)

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Geographical Considerations

• Topography
• Accessibility
• External Influence
• Locational Influence
• Plottage (Assemblage)
• Property Description and Location

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The Neighborhood

• Definition of Neighborhood
• Natural Boundaries
• Physical Boundaries (Roads, Rivers, Railroad
  Lines)
• Neighborhood Names
• Economic Boundaries
• Protected Classes

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Architectural Styles

• The Importance of Generic Labeling
• Generic (Single Story, One-and-a Half Story)
• Local Names (Cape Cod, Queen Anne Bungalow)
• Construction Styles

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Major Construction Components

• Foundation
• Framing
• Roofing
• Roofing Styles
• Roofing Material

• Doors
• Walls
• Windows
• Flooring, Wall Coverings, and Floor Coverings

73
Concrete Slab Foundation

74
Pier and Beam Foundations

75
Frame Construction Types

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Frame Construction Types

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Section 6

• Residential Application Case Studies

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Case Studies

• Case Study 1
• Case Study 2
• Case Study 3