Chapter 17 Real Estate Appraisal

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Chapter 17Real Estate Appraisal

• _______________________________________

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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

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Valuing a House Market Comparison Approach
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Competitive Market Analysis
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Calculating 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
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Costs 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
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Square-foot Method ofCost Estimating
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Income ApproachVariation by Direct
Capitalization
Income / Rate Value
18,000 / 0.09 200,000
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Projected Annual Operating Statement (Pro Forma
Statement)
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Direct Capitalization Using an Overall Rate
Income Overall Rate
Value
45,400 0.09376
200,000
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cost recovery
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Overall Rates - 10-year Holding Period, 25-year
Loan for 75 of the Purchase Price, 10 Investor
Return
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Reconciliation
Market Approach 180,000 x 75
138,000 Cost Approach 200,000 x 20
40,000 Income Approach 160,000 x 5
8,000 Final Indicated Value
186,000
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Appraisal Regulations

• THE APPRAISAL FOUNDATION
• FEDERAL REGULATION
• DEVELOPING THE APPRAISAL
• APPRAISAL STANDARDS USPAP
• APPRAISALS REQUIRED
• REPORTING STANDARDS

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Types of Appraisals andReporting Options under
USPAP
Types of Appraisals

• Complete appraisal
• Limited appraisal

Reporting Options

• Self-contained appraisal report
• Summary report
• Restrictive report

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Formats of Appraisal Reports

1. Letter report
2. Form report
3. Narrative report
4. Review appraisals
5. Real Estate Analysis

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Appraiser License

• Certified General Appraiser
• Certified Residential Appraiser
• State licensed appraiser
• Provisional licensed real estate appraiser
• Appraiser trainee

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Texas appraiser licensing and certification board
requirements
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Texas appraiser licensing and certification board
requirements
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Texas appraiser licensing and certification board
requirements
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Texas appraiser licensing and certification board
requirements
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HIGHEST AND BEST USE

• that use that will give the property its
  greatest current value!

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Principles 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

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Value

• Market value
• Assessed value
• Insurance value
• Loan value
• Estate tax value
• Plottage value
• Rental value
• Replacement value

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Markets

• Buyers market excess supply of housing for
  sale.
• Sellers market demand exceeds supply.

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Texas Regulations

• TALCB www.talcb.state.tx.us
• If you have not followed USPAP guidelines then
  include this statement
• THIS IS AN OPINION OF VALUE OR COMPARATIVE MARKET
  ANALYSIS AND SHOULD NOT BE CONSIDERED AN
  APPRAISAL.
• BROKERS PRICE OPINION
• COMPARATIVE MARKET ANALYSIS

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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