Transcript Real Estate Appraisal

Real Estate Appraisal
Chapter 11
Real Estate Appraisal
• Understanding the Appraisal Profession
– FIRREA
– State requirements
• Licensed appraisers
• Certified residential appraisers
• Certified general appraisers
Real Estate Appraisal
• What is Value?
– Investment value
• The value of property to a specific investor
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:
Real Estate Appraisal
• Market Value (Cont’d)
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.
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)
Real Estate Appraisal
• Key Appraisal Principles
– Anticipation - TVM
– Substitution
– Contribution
Real Estate Appraisal
• Key Appraisal Principles
– Change - Four Forces
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Physical (location)
Economic (financial)
Social
Political
Real Estate Appraisal
• The Traditional Appraisal Process
– Definition of the problem
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Type of value-purpose
Description of property
Specific property rights
Effective date
– Data selection and collection
• General market analysis
• Specific property analysis
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
Real Estate Appraisal
• The Traditional Appraisal Process
– Reconciliation of value indications
– Certification and Report of Estimated Value
Real Estate Appraisal
• Sales Comparison Approach
– Comparable sales data
• Selection (how similar are they?)
• How many comparables?
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• Sales Comparison Approach
– Adjustment of sales data
• Elements of comparison
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Property rights conveyed
Conditions of sale
Financing terms
Market conditions
Locational characteristics
Physical characteristics
– Applicability of the sales comparison approach
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
Real Estate Appraisal
• Income Approach
– Gross income multiplier
– Net income capitalization
– Discounted cash flow
• Applicability of the income approach