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1
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2
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- Intended User
- Land
- Reproduction Cost
- Limiting Conditions
- Comparable Sale
- Rectangular Survey
- Report
- Income App
- Depreciation
- Market Rents
- Market Rents
- Appraisal
- Appraisal Report
- Replacement Cost
- Assumptions
- Restricted Use Appraisal
- Lot and Block System
- Metes and Bounds
- Cost Approach
- Comparable Approach
- Contract Rents
- Effective Date of the Appraisal
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3
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- Narrative Appraisal Report
- Summary Appraisal Report
- Oral Report
- Site (situs)
- Specific Data
- Real Estate (The Dirt)
- Fractional Interests
- Plottage
- Gross Monthly Rent Multiplier (GMRM) ((GRM))
- Report
- Self-Contained Appraisal
- Letter Report
- Final Estimate of Value
- General Data
- Real Property
- Personal Property
- Subject Property
- Planned Unit Development
- Highest and Best Use
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4
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- URAR Report
- Reconciliation
- Highest and Best Use
- Hypothetical Conditions
- Improvements
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5
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- Importance of the Appraiser
- Provide an opinion of value to aid the client to make decision.
- How much of a loan should the lender make?
- How much to list the property for.
- How much insurance will be needed.
- Estate purposes.
- Tax purposes.
- Government acquisition in eminent domain.
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6
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- Originally real estate brokers established values for banks and other
lenders. There is a basic
conflict of interest when a broker is representing the buyer or the
seller or both of them.
- Brokers who are Real Estate Appraisers should not act as both in a
transaction.
- Because of these initial conflicts brokerage and appraisal gradually
separated into distinctly different fields.
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7
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- Appraisers have the following to sell to a client:
- a. Knowledge
- b. Experience
- c. Integrity
- d. Objectivity
- e. Uncompromised willingness to do the work on a timely basis for a mutually a=
greed
upon fee.
- (A.E.I.O.U.)
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8
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- The appraiser should have had a good general education.
- Currently each state outlines the requirements for acceptance for
licensing and certification. This
amounts to the appraiser having taken certain educational courses,
certain experience, a standard of ethics, and an ability to report
accurately.
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9
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- It is felt that experience will qualify most individuals to do quali=
ty
work in a given field. Anot=
her
idiom today is that more education, more degrees is a suitable
substitute for experience.
- Finally, the prevailing mentality today is that a certain education =
is
necessary but with adequate actual experience.
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10
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- References and recommendations are the most common method of determi=
ning
whether or not any individual has integrity.
- The states, and the federal government attempt to establish the
integrity of an individual.
- Finally, it is strongly felt today that education will help improve
ethics, and integrity.
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11
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- Appraisers sign the “Statement of Limiting Conditions” which include=
s a
statement that states that the appraiser has no present or future
interest in the subject property.
- Objectivity is very difficult for some people. With others it is less of a
problem. Some individuals f=
eel
that whatever it is that they have done would best qualify an indivi=
dual
for any endeavor, other people are truly, almost naturally more
objective.
- Perhaps objectivity is really a matter of self confidence and honest=
y.
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12
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- It is critical that the appraiser is capable of allocating their tim=
e,
and their completion of accepted assignments in a timely fashion.
- It should remain obvious that acceptance of an assignment should
preclude the person who accepted the assignment has the time, and is
capable of performing the work in an agreed upon time.
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13
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14
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- The first step in any appraisal is to Define The Problem.
- There are 7 steps in this definition of the problem.
- Identification of:
- 1. The client and other intended users.
- 2. The intended use of the appraiser’s opinions and conclusions.
- 3. The type and definition of value.
- 4. The Effective date of the appraiser’s opinions and conclusions.<=
/li>
- 5. The Characteristics of the property.
- 6. Any extraordinary assumptions necessary in the assignment.
- 7. Any hypothetical conditions necessary in the assignment.
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15
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- The client and other intended users.
- The identification of the client and other intended users helps lim=
it
who you might be liable to.
- For example you might be doing a letter report for a builder concer=
ning
a “Future Market Value” helping him determine the profitability of a
project. Another reader co=
uld
conclude that this is a general value for the entire area and
subsequently purchase a property, ultimately suffering a loss. Would that person then, try and=
hold
you accountable for their loss?
- The identification of the client (the person who ordered the apprai=
sal
normally) and other intended users should restrict the use of the
appraisal to people who understand what you are trying to submit in=
any
conclusions.
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16
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- The intended use of the appraiser’s opinions and conclusions.
- What are you doing the appraisal for?
What kind of value are you trying to conclude.
- Usually the value we seek is “Market Value” for the purpose of a le=
nder
who is going to make a loan.
- We could be looking for “Condemnation Value” in an eminent domain
proceeding by the city, county, or state.
- Sometimes we do an appraisal for a property settlement in a divorce.
Here the attorney normally wants equity value.
- An appraisal for “Equity Value” when a couple is trying to position=
a
“Living Trust” and their allocation of property.
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17
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- The type and definition of value.
- We are required to state the Type of Value we are seeking and give=
a
definition of that value.<=
/li>
- In most appraisals the definition of “Market Value” is included in=
the
report.
- The value sought could be for Tax Purposes in depreciation schedul=
es
for investors. We would ne=
ed to
state that that was the reason for the appraisal and why it was
important to separate the improvements and the land.
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18
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- The Effective date of the appraiser’s opinions and conclusions.
- The Effective Date is normally the date of inspection. The date that you saw and inspe=
cted
the property.
- The value of the property on, then give a date, then state the
value. That way someone wo=
uld
not be able to rely on the value next year, or last year.
- Sometimes we do an appraisal in the past. In that case the date of inspec=
tion
would not be the Effective Date of the appraisal. This could be the case in a pro=
bate. The original owner died 14 year=
s ago
and the family didn’t know they had to do a probate to establish va=
lue.
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19
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- The Characteristics of the property.
- Every appraisal must have a legal description of the property.
- Additionally every appraisal must have an accurate description of =
the
real estate (site) and any improvements (buildings). If there is a=
ny
personal property included in the sale it must be included in the
report. Carpets, drapes, w=
asher
and dryer.
- Real estate is owned by what we call the “Bundle of Rights” or your
right to use certain benefits of the property, not simply the site=
and
improvements but your right to use the benefits associated with th=
is
bundle of rights.
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20
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- Real property ownership involves the following rights. The government keeps some right=
s.
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21
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- 6. Any extraordinary assumptions necessary in the assignment.
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22
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- Any extraordinary assumptions necessary in the assignment.
- Extraordinary assumptions presume as fact otherwise uncertain
information about physical, legal, or economic characteristics of t=
he
subject property; or about conditions external to the property, suc=
h as
market conditions or trends; or about the integrity of data used in=
the
analysis.
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23
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- Sample language that could be used to describe an
Extraordinary Assumption in a report.
- Sample Language #1 -
- “The property owner indicates that the home has a total of 2,400 sq=
uare
feet. Based on the locatio=
n of
the home on the site, the landscaping and the configuration of the
second floor, the appraiser was unable to measure the exterior of t=
he
property. If the square fo=
otage
of the home is not 2,400 square feet, the appraiser might have a
different opinion of value.
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24
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- Any hypothetical conditions necessary in the assignment.
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25
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- Any hypothetical conditions necessary in the assignment.
- A Hypothetical Condition is something that could be but isn’t as t=
he
appraiser writes their report.
- The appraiser is asked to develop an appraisal on the subject prop=
erty
as it is now, a vacant lot.
- The appraiser is asked to estimate a value if the lot had a finish=
ed
four-plex built on it.
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26
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- This 2nd Step, Plan the Appraisal includes determining the
“Scope of the Work”, usually with the client. Then you plan the appraisal. You=
r text
includes six helpful steps in this planning.
- Decide which data is needed
- Identify the sources of the needed data.
- Determine what personnel are needed.
- Make a time schedule.
- Make a flow chart.
- Present a fee proposal, agree upon a fee, sign a contract.
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27
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- There are two basic types of Data:
- 1. General Data
- General data has to do with the current economic market, real estate
market and location of the subject property. General Data could be =
used
for other properties in the area.
- 2. Specific Data
Specific data is about the site and the improvement that you =
are
working on. It will pertain only to that property.
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28
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29
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- The appraiser will have a sizable amount of data for any area that t=
hey
have done repetitive appraisals in.
- Other data sources include the Multiple Listing Services. The County Recorders Office. Tit=
le
Companies.
- Some appraisers subscribe to data services. They simply type in some basic
information and suitable comparables are downloaded.
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30
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- Will you need other secretaries or appraisers to assist you with the
appraisal?
- Will you need another body when you are at the site?
- Can someone in the office gather the data necessary for the report?<=
/li>
- Can someone else in the office arrange the time for you arrival?
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31
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- Depending on the size of the office and the volume of work the perso=
nnel
that is or might be available is limited.
- Some offices have one person who will make a time schedule for you, =
with
comparables, and you simply arrive in a timely fashion.
- Usually when we are in the field appraising single family homes we w=
ill
do four homes in a day.
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32
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- You will want a time schedule on a daily basis. This is particularly true when y=
ou are
doing field work.
What time will you leave?
What time will you get to the first appraisal. If you are ahead of schedule, be=
hind
schedule, do you have the telephone number of the next client whose
property you are appraising.
- How are you going to get into the property?
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33
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- IF you get into the field and some or all of the comparables are
unsuitable for the appraisal. How
will you get other comparables while you are there? Will you have to go back? What if you had to trade cars an=
d you
don’t have your tools with you.
- Better than half of appraisals are delivered late. Once you get the field
information and all the dat=
a, how
long until you finish the report?
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34
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- If you have a heavy workload you will want a flow chart.
- Flow charts are many and varied.
Depending on your workload you will need to use a flow chart =
of
some kind so you will know where you are and when appraisals in prog=
ress
will be finished.
- I prefer a visual flow chart, as in a white board on a wall where I =
can
see from my desk or worktable what I have on my agenda.
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35
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- You will finally have to tell the potential client what your fee for=
the
assignment is going to be.
- Once they accept that, rather than a contract, the fax or email you =
an
intent for work.
- You can then begin your work. In
California it is rate that we ever sign a contract. The fax or email is a letter dir=
ecting
us to do the work.
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36
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- Data analysis is simply the analyzing of the data that you have gath=
ered
or anticipate gathering.
- You are going to gather, or maybe already have gathered data
that is pertinent to your appraisal.
- You need to ascertain how that data that you plan on using relates to
the subject property.
- The appraisal must include a highest and best use anlysis of the
property as well.
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37
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- The market analysis amounts to the type of property you are trying to
appraise.
- With single family homes, which will be 99.99% of your work you will still apply a=
ll of
the steps.
- The following slide has a 6 step process that was outlined by the
institute in a book “The Appraisal of Real Estate” 12th
edition.
- In your real appraisal work you won’t be aware that you are using th=
ese
steps, but you are, and they are worth looking at.
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38
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- Property productivity analysis
- Market delineation
- Demand analysis
- Competitive supply and demand analysis
- Supply and demand study
- Capture estimation
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39
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- Which features of the subject property define the productive
capabilities and potential uses of the property.
- These attributes can be physical, legal, or locational.
- All are the basis for selecting comparable properties.
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40
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- Once you have determined the uses of the subject property you can
identify a market, or markets for that property.
- What you are doing is separating the subject property from a larger
market according to its probable use.
- A single family home in a single family neighborhood all zoned
Residential 1 (R-1).
- This won’t be a shopping center.
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41
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- You must consider existing and anticipated demand. You study population and employm=
ent
data to analyze and forecast the demand.
- The scope of work required by the assignment will dictate to what ex=
tent
demand variables must be investigated.
- A regional mall would involve one demand study, a single family home
would be another thing.
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42
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- Here you will determine what is currently on the market as competiti=
on
for your subject property.
- This is normally done from the information that you have gotten from=
the
local Multiple Listing Service.
- Knowing then what is in competition with your property, and trying to
determine the probable time before that supply is exhausted.
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43
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- You will examine the interaction of supply and demand to determine if
demand exists. You can esti=
mate
the length of time, the exposure to the market, before the property
would sell.
- How much of what you are appraising is being built right now, are th=
ere
proposals and permits that have been applied for to construct similar
property in the neighborhood or affective area of your subject?
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44
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- How much of the market will your subject command, capture? You will compare the amenities o=
f your
subject property and other properties being offered and determine wh=
at
price you can achieve to attract enough demand to justify the price =
you
have indicated.
- If four homes in the indicated price area are available but all four
look like they will sell before the subject because they are more
desirable, then the subject will command a lower price
- When will the subject sell and for how much.
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45
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- This information generated through this Market Analysis is important=
for
all three of the approaches to value.
- Cost Approach – it provides the basis for depreciation, physical deterioration and funct=
ional
and external obsolescence.
- Income Capitalization Approach – this study provides the basis for
rents, vacancies, expenses of operation.
- Sales Comparison Approach – this study provide the comparables that =
help
determine the value.
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46
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- Two highest and best use analyses are made;
- Highest and best use as vacant.
- Highest and best use as improved.
- Four tests have to be met before any highest and best use can be
considered.
- If a proposed use fails to meet any of the four tests it is discarde=
d.
- Finally, there will be a highest and best use.
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47
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- The 4 Tests for Highest and Best Use are:
- 1. Physically possible.
- 2. Legally permissible.
- 3. Financially feasible.
- 4. Maximally productive.
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48
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- The proposed use has to be possible.
If you propose a 12 story hotel for a site that is zoned for =
that
your good. You wouldn’t pro=
pose a
12 story hotel for construction of a single family home located among
other single family homes.
- If it is not physically possible, it can’t be done, so it is not even
considered.
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49
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- The proposal must be legal. Is it
legally permitted?
Is the Zoning right for you proposal? What about environmental studies=
?
Are there prohibitive Private Restrictions?
- Easements can restrict the use of a site.
- Height restrictions.
- Will the city, county or state allow what you are proposing?
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50
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- The proposed use must be financially feasible if it is to compete wi=
th
other uses. If you plan on
building a 200 unit apartment building in Death Valley, California it
isn’t likely you’ll ever fill it with tenants. If you don’t have rents coming i=
n it
won’t be profitable.
- If it isn’t profitable then it isn’t financially feasible.
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51
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- The proposed project should give the maximum financial return that w=
ould
be possible.
- Even though the property is being used as a home, if it is an R-3 or=
R-4
lot on which you could build a 6 unit apartment building,.
- The value as a home is $500=
,000
but the value of the 6 unit would be $1,200,000 and cost $500,000 to
build, then the highest and best use would be the 6 units even thoug=
h it
will remain a single family dwelling.
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- To collect the data.
- Apply the sales comparison approach.
- Define the problem to be solved.
- None of the above.
- Page 1 - 4
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79
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- Foreclosure value.
- Insurable value.
- Purchase value.
- Market value.
- Page 1 - 4
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80
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- a. Mailing address
- c. Lot number
- c. Survey
- d. Subdivision name
- Page 1 - 5
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81
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- The scope of the work to be done
- The value estimate reported.
- Which comparable sales to use.
- All of the above
- Page 1 - 6
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82
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- a. demand analysis and forecast.
- b. property productivity analysis
- c. market delineation.
- d. all of the above.
- Page 1 - 11
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83
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- Suitable for a very steep lot.
- Maximally productive.
- Market delineation.
- All of the above.
- Page 1 - 12
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84
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- To identify comparable sites.
- To identify the owner’s tastes.
- Botha. And b.
- Neither a. nor b.
- Page 1 - 13
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85
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- a. The value of the property is low.
- b. the improvements are quite old.
- c. the improvements are new.
- d. None of the above.
- Page 1 - 14
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86
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- Multiply the cost by a cost factor.
- Divide by the vacancy rate.
- Estimate and apply a market rent in their calculations.
- Use the contract rent in their calculations.
- Page 1 - 18
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87
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- Rounded to reflect accuracy.
- Negotiated with the client.
- Based on the appraiser’s instincts.
- Rounded to the nearest dollar.
- Page 1 - 19
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88
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89
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- Verbal.
- Short form narrative.
- Form appraisals
- Scope of work contracts.
- Page 1 - 20
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90
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