The Appraisal Profession

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Section 1

• The Appraisal Profession

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Learning Objectives

• Identify what it means to be a profession
• Understand the evolution of the appraisers role
  in society
• Understand the evolution of the appraisal
  profession
• Recognize the various appraisal associations
• Recognize how the appraisal associations
  contribute to the appraisal profession
• Recognize the significance of FIRREA

3
Learning Objectives

• Understand the significance of The Appraisal
  Foundation
• Understand the role and structure of The
  Appraisal Foundation
• Recognize the significance of USPAP
• Understand the history and development of the
  Uniform Standards of Professional Appraisal
  Practice
• Define an appraisal

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What Is a Profession?

• Ethical Standard Of Practice
• Roadmap for Novices
• Protection for Existing Professionals
• Information for Users on Rules of the Profession

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What Is a Profession?

• Qualifications
• Education
• Experience
• Licensing or Certification

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What Is a Profession?

• Maintenance of the Public Trust
• Credibility through Competency
• Skills and Performance
• USPAP Competency Provision
• Competency Rule

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Evolution of the Appraisal Profession

• Profession Began Due to Conflict of Interest when
  Brokers Value Property
• FIRREA Requirements for Certification or
  Licensing
• Development of Uniform Standards of Professional
  Appraisal Practice
• Establishment of The Appraisal Foundation (TAF)

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Evolution of the Appraisal Profession

• Establishment of the Independent Boards (ASB and
  AQB)
• Recognition of USPAP as the Standard for the
  Profession
• Appraisal Associations Assist Members

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Appraisal Noun or Adjective?

• Definition An appraisal is a process by which a
  real estate appraiser identifies a problem,
  collects and verifies, interprets, and analyzes
  data in order to reach a value conclusion
  (opinion of value) of an ownership interest in
  real estate or any related non-realty interests
  (property rights)

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Appraisal Process

• Problem Identification
• Scope of Work
• Data Collection and Verification
• Highest and Best Use
• Land Value
• Three Approaches to Value
• Reconciliation
• Communicate the Results

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Appraisal Practice

• Economic Theory, Appraisal Theory, and Appraisal
  Practice
• Appraisal, Appraisal Review, and Appraisal
  Consulting
• Appraisal, Valuation, and Evaluation

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Section 2

• Real Property Conceptsand Characteristics

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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
• Understand the distinction between real estate,
  real property, and personal property

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Learning Objectives

• Define an estate
• Explain the bundle of rights theory
• Define fixture, trade fixture, and chattel
• Demonstrate the test for fixtures
• Identify the characteristics of land
• Identify the different types of legal descriptions

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Land

• Attributes of Land
• Definition The ground and the soils as well as
  everything attached to the earth, whether by
  nature as in the trees or subsurface minerals or
  by the hand of man as in improvements such as
  buildings or fences

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Land

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Real Estate and Real Property

• Real Estate
• Physical Land
• Appurtances (Improvements)
• Real Property and Bundle of Rights
• Surface Rights
• Subsurface (Mineral) Rights
• Air Rights
• Water Rights (Littoral and Riparian)

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Estates

• Fee Simple
• Fee Simple Absolute
• Fee Simple Qualified
• Fee Simple Defeasible
• Fee Simple Determinable (Condition Precedent)
• Fee Simple Conditional (Condition Subsequent)

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Estates

• Life Estate
• Remainderman and Estate in Remainder
• Reversion or Estate in Reversion
• Nonfreehold Estates or Leasehold Estates

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Personal Property Concepts And Characteristics

• Real Property and Personal Property
• Chattel
• Emblements
• Fixture
• Trade Fixture
• The Test for Fixtures

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Land Characteristics

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

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Physical Characteristics of Land

• Size and Shape
• Site Improvements
• Topography
• Accessibility
• External Influence
• Locational Influence
• Plottage and Assemblage

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Legal Descriptions

• Principal Method of Distinguishing One Property
  from Another
• Describes Area that Is Bounded
• Licensed Land Surveyor Must Be Able to Identify
  Precise Location of Property

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Methods of Describing Real Estate

• Metes and Bounds
• Monuments
• Landmarks
• Point of Beginning
• Modern Technology

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Metes and Bounds

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Methods of Describing Real Estate

• Rectangular (U.S. Government) Survey System
• Principal Meridians and Range Lines
• Base Lines and Township Lines
• Townships and Sections
• Correction Lines
• Fractional Sections and Government Lots

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Sections in a Township

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Methods of Describing Real Estate

• Lot and Block System
• Plat map
• Block and Lot Numbers
• Subdivision Plat
• Combined Legal Descriptions
• Land Units and Measurements

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Section 3

• Legal Considerations

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Learning Objectives

• Be familiar with basic real property concepts
• Be familiar with the various forms of ownership
• Distinguish the difference between the various
  forms of ownership including joint tenancy,
  tenancy in common, and tenancy by the entirety
• Understand the concept of right of survivorship
• Describe the difference between condominium
  ownership and cooperative ownership
• Understand the difference between a living trust
  and a testamentary trust

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Learning Objectives

• Describe the benefits of land trusts
• Understand the concept of time-sharing
• Identify and define the four unities of ownership
• Identify the benefits of cooperative ownership
• Distinguish between time-share estate and
  time-share use
• Identify the four public or governmental
  restrictions
• Describe an eminent domain

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Learning Objectives

• Understand the difference between eminent domain
  and condemnation
• Calculate a real estate tax bill using
  equalization factors and tax rates
• Understand the concept of easements and licenses
• Describe various ways to terminate an easement
• Understand the concept of contract law
• Identify the key elements needed in all contracts
• Define a real estate purchase contract

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Learning Objectives

• Define the various lease types
• Distinguish between mortgagee and mortgagor
• Explain the different types of liens
• Distinguish between a title and a deed
• Identify the necessary elements for a valid deed
• Describe the different types of deeds
• Distinguish between deed of trust and deed in
  trust

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Forms of Property Ownership

• Ownership in Severalty (Separate Ownership)
• Co-Ownership
• Tenancy in Common
• Joint Tenancy
• Unities of Ownership
• Right of Survivorship
• Partition

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Tenancy in Common

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Joint Tenancywith Right of Survivorship

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Combination of Tenancies

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Forms of Property Ownership

• Marital Property
• Tenancy by the Entirety
• Community Property

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Forms of Property Ownership

• Partnership Property or Tenancy in Partnership
• General Partnership
• Limited Partnership
• Joint Venture
• Syndicate
• Corporation
• Limited Liability Company (LLC)

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Forms of Property Ownership

• Trusts
• Trustee, Trustor, and Beneficiary
• Benefits of Trusts
• Living Trust
• Testamentary Trust
• Land Trust

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Trusts

• Benefits of Land Trusts
• Anonymity
• Easier Transferability
• No Marital Property Rights
• Collateral
• Real Estate Investment Trust (REIT)

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Special Forms of Ownership

• Condominium Ownership
• Planned Unit Developments (PUDS)
• Cooperative Ownership
• Time-Sharing

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Condominium Ownership

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Public ControlsPolice Power

• Zoning Ordinances
• Variances
• Zoning Change
• Nonconforming Uses
• Building Codes
• Historic Preservation Restrictions
• Subdivision Regulations
• Environmental Regulations

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Public ControlsEminent Domain

• Public Use
• Condemnation
• Just Compensation

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Public ControlsTaxation

• General Taxation
• Ad Valorem Taxation
• Assessed Value
• Equalization Factor
• Tax Rate
• Exemptions
• Special Assessments or Improvement Taxes

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Escheat

• The governmental right to affect the orderly
  transfer of property ownership to the state when
• the owner dies without a valid will (intestate),
  and
• there is an absence of legal heirs or claimants
• Prevents Property from Being Ownerless or
  Abandoned

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Private ControlsNon-Financial Encumbrances

• Restrictive Covenants and Deed Restrictions
• Subdivision Restrictive Covenants
• Encroachments
• Easements
• Appurtenant Easement
• Easement in Gross

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Private ControlsNon-Financial Encumbrances

• License
• Party Walls or Party Wall Easement
• Profit
• Terminating an Easement

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Private ControlsFinancial Encumbrances

• Leases
• Landlord (Lessor)
• Tenant (Lessee)
• Right of Reversion
• Lease Option Clause
• Right of First Refusal

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Private ControlsFinancial Encumbrances

• Types of Leases
• Gross Lease
• Net Lease
• Percentage Lease
• Graduated Lease
• Index Lease
• Ground or Land Lease

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Private ControlsFinancial Encumbrances

• Mortgages
• Fixed Rate Mortgage
• Adjustable Rate Mortgage (ARM)
• First Mortgage
• Second Mortgage
• Purchase Money Mortgage (PMM)

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Private ControlsFinancial Encumbrances

• Mortgages
• Construction Mortgage
• Reverse Mortgage
• Wraparound Mortgage
• Blanket Mortgage

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Private ControlsFinancial Encumbrances

• Liens
• Voluntary or Involuntary
• General or Specific
• Judgment
• Tax
• Mechanics
• Vendors

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Real Estate Contracts

• Required Elements
• Offer
• Acceptance
• Consideration
• Capacity
• Legal Purpose

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Real Estate Purchase Contract

• Date
• Parties
• Property Description
• Price
• Contingency Clause
• Possession
• Evidence of Title

• Form of Deed
• Proration
• Property Inspection
• Home Warranty Plan
• Earnest Money
• Signing
• Closing

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Transfer of Title

• Required Elements
• Words of Conveyance
• Competent Grantor
• Identifiable Grantee
• Adequate Legal Description
• Proper Execution
• Delivery and Acceptance

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Transfer of Title

• Types of Deeds
• General Warranty Deed
• Special Warranty Deed
• Bargain and Sale Deed
• Quitclaim Deed
• Deed of Trust Vs. Deed in Trust

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Section 4

• Value

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Learning Objectives

• Understand the definition of value
• Understand the distinction between price, cost,
  and value
• Be familiar with the forces that create value
  (DUST)
• Be familiar with the forces that affect value
  (PEGS)
• Identify the various types of value
• Define market and real estate market
• Define market value

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What Is Value?

• Value, Cost, and Price
• Differences between Value and Cost
• Direct Costs
• Indirect Costs

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Forces that Create Value

• Supply and Demand Factors
• Demand
• Utility
• Scarcity
• Transferability
• Whose Market Is It Anyway?
• Sellers Market
• Buyers Market

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Forces that Affect Value

• Physical and Environmental
• Economic
• Governmental
• Social

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Types of Value

• Market and Real Estate Market
• Market Value
• Arms Length Transaction
• Selling Price
• Asking Price/Listing Price
• Offering Price

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Other Types of Value

• Value in Use
• Special Use Property
• Limited Market Property
• Going Concern Value

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Other Types of Value

• Investment Value
• Assessed Value Market Value x Assessment Ratio
• Insurable Value
• Liquidation Value

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Section 5

• The Approaches to Value

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Learning Objectives

• Be familiar with the three approaches to value
• Understand the relationship between the three
  approaches
• Understand the process of each value approach
• Understand the strengths and limitations of each
  valuation approach
• Understand reconciliation within each approach
• Understand how to reconcile between the approaches

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Learning Objectives

• Define a unit of comparison
• Define an element of comparison
• Recognize the difference between quantitative and
  qualitative adjustments
• Be familiar with sales comparison (market)
  approach
• Be familiar with the cost approach
• Be familiar with the income approach

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The Sales Comparison Approach

• Subject Property
• Comparables
• Elements of Comparison
• Unit of Comparison
• Quantitative Adjustment
• Qualitative Adjustment

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Methodized Process of the Sales Comparison
Approach

• Research relevant sales data collected from the
  market
• Verify data and validity of arms-length
  transaction
• Choose the units of comparison that are relevant
• Adjust for differences in elements of comparison
• Reconcile to value indication under the sales
  comparison approach

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Methodized Process of the Sales Comparison
Approach

• Extracting Adjustments
• Paired Sales Analysis
• Isolation of Differences
• Positive and Negative Adjustments to Comparables
• Net Adjustment
• Reconciliation within The Approach
• Weighting of the Comparables

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The Cost Approach

• Methodized Process of the Cost Approach
• RCN (Replacement Cost New/Reproduction Cost New)
• Methods of Cost Analysis
• Cost Index Method
• Square Food Method
• Unit-in-Place Method
• Quantity Survey Method

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Accrued Depreciation

• Physical Depreciation
• Obsolescence
• Functional Obsolescence
• Curable
• Incurable
• Superadequacy
• External Obsolescence

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Methods of Depreciation

• Economic Age-Life Method
• Effective Age (EA)
• Total Economic Life (TEL)
• Remaining Economic Life (REL)
• Modified Economic Age-Life Method
• Excludes Curable Physical Depreciation
• Excludes Curable Functional Obsolescence

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Methods of Depreciation

• The Breakdown Method
• Straight-Line Depreciation Method
• Market Method of Depreciation

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Cost Approach

• Land or Site
• Indicated Value under the Cost Approach

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The Income Approach

• Used with Income Producing Properties
• Income Capitalization Approach
• Net Operating Income (NOI)
• Potential Gross Income
• Vacancy and Collection Loss
• Effective Gross Income
• Operating Expenses

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Direct Capitalization Relationships

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The Income Approach

• Income Multiplier Method
• Gross Income Multiplier (GIM)
• Gross Rent Multiplier (GRM)

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Income Multiplier Method

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Section 6

• Highest and Best Use

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Learning Objectives

• Understand the importance of highest and best use
• Recognize why highest and best use is completed
  as if vacant
• Recognize why highest and best use is completed
  as if improved
• Identify the four-step test toward determining
  highest and best use

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Highest and Best Use Defined

• Reasonably Probable Use that Produces Maximum
  Value
• Two Methods
• As if Vacant
• As if Improved

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Four Tests of Highest and Best Use

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

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Section 7

• Appraisal Principles

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Learning Objectives

• Be familiar with the classical economic
  principles
• Understand the definitions of the appraisal
  principles as they apply to the In Practice
  problems

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Economic Principles

• Anticipation
• Balance
• Change
• Competition
• Conformity
• Consistent Use Theory
• Contribution

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Economic Principles

• Law of Decreasing Returns
• Economies of Scale
• Entrepreneurial Incentive
• Entrepreneurial Profit
• Externalities
• Four Agents of Production
• Four Stages of a Market (Neighborhood, District)

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Economic Principles

• Law of Increasing Returns
• Opportunity Cost
• Progression
• Regression
• Substitution
• Surplus Productivity
• Supply and Demand

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Supply and Demand

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The Principles Applied

• In Practice 1
• In Practice 2
• In Practice 3

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Section 8

• Overview of Real Estate Markets and Analysis

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Learning Objectives

• Understand market fundamentals, characteristics,
  and definitions
• Understand supply analysis
• Understand demand analysis
• Understand use of market analysis
• Understand market analysis and its role in the
  appraisal process
• Understand market analysis as it applies to
  highest and best use
• Identify the various types of analysis

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Market Analysis

• Market Analysis and The Appraisal Process
• Data Analysis
• 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 the Interaction between Supply
  and Demand
• Step 6 Forecast (Market Penetration of Subject)

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Types of Market Analysis

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

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Section 9

• Ethics and How They Apply in Real Estate

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Learning Objective

• Recognize the importance of ethics to a
  professional

100
Ethics and the Appraisal Profession

• Appraisal professionals are obligated to report
  unethical activity
• Lack of intent to damage is no defense
• Standard of practice is ever-evolving