Real Estate Appraisal

1
Chapter 11

• Real Estate Appraisal

2
Appraisal Regulation

• FIRREA of 1989
• Appraisal Foundation
• AQSB
• ASB
• Trainee appraisers
• Licensed appraisers
• Certified residential appraisers
• Certified general appraisers
• USPAP
• Standard 1 (and rules)

3
What is Value?

• Market value
• Typically motivated parties
• Well informed parties
• Market exposure
• Payment in cash
• No special circumstances
• Investment value worth to a particular investor
  based on that investors personal standards of
  investment acceptability
• Price versus market value
• Market value versus cost of production
• Other types of value
• Assessed value
• Insurable value

4
Key Appraisal Principles

• Anticipation
• Change
• Substitution
• Contribution

5
The Appraisal Process

• Definition of the problem
• Type of value-purpose
• Description of property
• Specific property rights
• Effective date
• Data selection and collection
• General market analysis
• Specific property analysis
• Highest and best use analysis
• As though vacant
• As improved
• Application of the three approaches to valuation
• Sales comparison approach
• Cost approach
• Income approach
• Reconciliation of value indications
• Report of defined value

6
Sales Comparison Approach

• Comparable sales data selection
• Adjustment of sales data
• Elements of comparison
• Property rights conveyed
• Conditions of sale
• Financing terms
• Market conditions
• Locational characteristics
• Physical characteristics
• Applying the sales comparison approach

7
Table 11.1
8
Cost Approach

• Estimating site value
• Estimating production cost
• Reproduction cost
• Replacement cost
• Estimating accrued depreciation
• Physical deterioration
• Functional obsolescence
• Economic obsolescence
• Applying the cost approach

9
Table 11.2
10
Income Approach

• Gross income multiplier
• GIM Value/Gross Income
• Net income capitalization
• Capitalization Rate Net Income/Value
• Discounted cash flow

11
Table 11.3
12
Figure 11.1
13
Figure 11.1 (continued)