Title: Real Estate Principles Tenth Edition
1Real Estate PrinciplesTenth Edition
- Real Estate
- An Introduction to the Profession
- Tenth Edition
2Chapter 18Real Estate Appraisal
- _________________________
3 Appraisal
- An estimate of value.
- Three approaches to estimating value
- Market comparable sales data
- Cost construction cost plus land value
- Income monetary returns of property capitalized
4 Valuing a House Market Comparison Approach
2,960
-2,700
-7,560
5Competitive Market Analysis
6Calculating Gross Rent Multiplier
Building
Sales Price
Gross Annual Rents
Gross Rent Multiplier
No.1
245,000
34,900
7.02
No.2
160,000
22,988
6.96
No.3
204,000
29,352
6.95
No.4
196,000
27,762
7.06
As a Group
805,000
115,002
7.00
7Costs Approach to Value
Step 1 Estimate land as vacant
30,000 Step 2 Estimate new construction
cost of similar building 120,000 Step 3
Less estimated depreciation -12,000 Step 4
Indicated value of building
108,000 Step 5 Appraised property value
138,000 by the cost approach
8Square-foot Method of Cost Estimating
9 Income Approach
Variation by Direct Capitalization
Income / Rate Value
18,000 / 0.09 200,000
10Projected Annual Operating Statement (Pro Forma
Statement)
Operating expense ratio 31,070 / 79,800
38.9
11Direct Capitalization Using an Overall Rate
Income Overall Rate
Value
45,400 0.09376
484,215
12cost recovery
13Overall Rates - 10-year Holding Period,
25-year Loan for 75 of the Purchase Price, 10
Investor Return
14 Reconciliation
Market Approach 180,000 x 75
135,000 Cost Approach 200,000 x 20
40,000 Income Approach 160,000 x 5
8,000 Final Indicated Value
183,000
15Types of Appraisals andReporting Options under
USPAP
Types of Appraisals
- Complete appraisal
- Limited appraisal
Reporting Options
- Self-contained appraisal report
- Summary report
- Restrictive report
16 Formats of Appraisal Reports
- Letter report
- Form report
- Narrative report
- Review appraisals
- Real estate analysis
17 Appraiser License
- Certified General Appraiser
- Certified Residential Appraiser
- State licensed appraiser
- Provisional licensed real estate appraiser
- Appraiser trainee
18Principles of Value
- Principle of Anticipation
- Principle of Substitution
- Highest and best use of a property
- Principle of competition
- Principle of supply and demand
- Principle of change
- Principle of contribution
- Principle of conformity
19 Value
- Market value
- Assessed value
- Insurance value
- Loan value
- Estate tax value
- Plottage value
- Rental value
- Replacement value
20 Markets
- Buyers market excess supply of housing for
sale. - Sellers market demand exceeds supply.
21Professional Appraisal Societies
- The American Institute of Real Estate Appraisers
(AIREA) - MAI
- SRA
- Society of Real Estate Appraisers
- NATIONAL Association of Independent Fee
Appraisers - Farm Managers and Rural Appraisers
- National Society of Real Estate Appraisers
- American Society of Appraisers
22 Key Terms
- Appraisal
- Capitalize
- Comparables
- Cost approach
- Depreciation
- FIRREA
- Gross rent multiplier
- Highest and best use
- Income approach
- Market approach
- Market value
- Operating expenses
- Scheduled gross, Projected gross
- USPAP