Real Estate Appraisal

1
Real Estate Appraisal

• Chapter 11

2
Real Estate Appraisal

• Understanding the Appraisal Profession
• FIRREA
• State requirements
• Licensed appraisers
• Certified residential appraisers
• Certified general appraisers

3
Real Estate Appraisal

• What is Value?
• Investment value
• The value of property to a specific investor

4
Real Estate Appraisal

• Market Value
• The most probable price which a property should
  bring in a competitive and open market under all
  conditions requisite to a fair sale, the buyer
  and seller, each acting prudently and
  knowledgeably, and assuming the price is not
  affected by undue stimulus. Implicit in this
  definition is the consummation of a sale as of a
  specified date and the passing of title from
  seller to buyer under conditions whereby 

5
Real Estate Appraisal

• Market Value (Contd)
• 1. Buyer and seller are typically motivated
• 2. Both parties are well informed or well
  advised, and acting in what they consider their
  own best interest
• 3. A reasonable time is allowed for exposure in
  the open market
• 4. Payment is made in terms of cash in U.S.
  Dollars or in terms of financial arrangements
  comparable thereto and
• 5. The price represents the normal consideration
  for the property sold unaffected by special or
  creative financing or sales concessions granted
  by anyone associated with the sale.

6
Real Estate Appraisal

• What is Value?
• Price versus market value
• Market value versus cost of production
• Other types of value
• Assessed value
• Insurable value (Improvements Only)

7
Real Estate Appraisal

• Key Appraisal Principles
• Anticipation - TVM
• Substitution
• Contribution

8
Real Estate Appraisal

• Key Appraisal Principles
• Change - Four Forces
• Physical (location)
• Economic (financial)
• Social
• Political

9
Real Estate Appraisal

• The Traditional 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

10
Real Estate Appraisal

• The Traditional Appraisal Process
• Highest and best use analysis
• As though vacant
• Land with improvements
• Application of the three approaches to valuation
• Sales comparison approach
• Cost approach
• Income approach

11
Real Estate Appraisal

• The Traditional Appraisal Process
• Reconciliation of value indications
• Certification and Report of Estimated Value

12
Real Estate Appraisal

• Sales Comparison Approach
• Comparable sales data
• Selection (how similar are they?)
• How many comparables?

13
Real Estate Appraisal

• Sales Comparison Approach
• Adjustment of sales data
• Elements of comparison
• Property rights conveyed
• Conditions of sale
• Financing terms
• Market conditions
• Locational characteristics
• Physical characteristics
• Applicability of the sales comparison approach

14
Real Estate Appraisal

• Cost Approach
• Estimating site value
• Estimating production cost
• Reproduction cost
• Replacement cost
• Estimating accrued depreciation
• Physical deterioration
• Functional obsolescence
• Economic obsolescence
• Applicability of the cost approach

15
Real Estate Appraisal

• Income Approach
• Gross income multiplier
• Net income capitalization
• Discounted cash flow
• Applicability of the income approach