Real Estate Appraisal

  • What is the property worth?
    • Sellers want to know
    • Buyers want to know
    • Lenders want to know
    • Insurers want to know
    • Tax assessors want to know
  • Appraisers are professionals trained to form credible opinions of the value of properties.
  • Appraisal Regulation
    • FIRREA of 1989
    • Appraisal Foundation
      • AQB – Appraisal Qualification Board
      • ASB – Appraisal Standards Board
    • AQB License & Certification Guidelines
      • Trainee appraisers
      • Licensed appraisers
      • Certified residential appraisers
      • Certified general appraisers
    • Uniform Standards of Professional Appraisal Practice from the ASB
      • USPAP
    • For example Standard 1 requires appraisers to carefully examine the appraisal problem to be solved and to perform the necessary tasks to form a credible opinion of value.
  • What is Value?
    • Market value – see page 184 for very detailed definition from FIRREA
    • Investment value – worth to a particular investor based on that investor’s personal standards of investment acceptability
    • Price versus market value
    • Market value versus cost of production
    • Other types of value
      • Assessed value
      • Insurable value
  • Key Appraisal Principles
    • Anticipation
    • Change
    • Substitution
    • Contribution
  • The Appraisal Process
    • Step 1 Definition of the problem
      • Type of value
      • Description of property
      • Specific property rights
      • Use of the appraisal
      • Effective date
    • Step 2 Data selection and collection
      • General market analysis
      • Specific property analysis
    • Step 3 Highest and best use analysis
      • As though vacant
      • As improved
    • Step 4 Application of the three approaches to valuation
      • Sales comparison approach
      • Cost approach
      • Income approach
    • Step 5 Reconciliation of value indications
    • Step 6 Report of defined value
  • Highest and Best Use Analysis
    • To form an opinion of market value, appraisers must first decide how “the market” will use the property. Competition between potential buyers will result in the property being used in its highest and best use.
    • Highest and Best Use must be:
      • Legally permissible
      • Physically possible
      • Financially feasible
      • Maximally productive
  • 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
      • See Table 9.1 Sales Comparison Market Data Grid
  • 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
      • See Table 9.2 Summary of Cost Valuation of an Apartment Property
  • Income Approach
    • Gross income multiplier
      • GIM = Value/Gross Income
    • Net income capitalization
      • Capitalization Rate = Net Income/Value