Chapter 11

Real Estate Appraisal

Appraisal Regulation

FIRREA of 1989 Appraisal Foundation

AQSB ASB

Trainee appraisers Licensed appraisers Certified residential

appraisers Certified general appraisers USPAP

Standard 1 (and rules)

What is Value?

Market value Typically motivated parties Well informed parties Market exposure Payment in cash No special circumstances

Investment value – worth to a particular investor based on that investor’s personal standards of investment acceptability

Price versus market value Market value versus cost of production Other types of value

Assessed value Insurable value

Key Appraisal Principles

Anticipation Change Substitution Contribution

The 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

Highest and best use analysis As though vacant As improved

Application of the three approaches to valuation Sales comparison approach Cost approach Income approach

Reconciliation of value indications Report of defined value

Sales Comparison Approach

Comparable sales data selection Adjustment of sales data Elements of comparison

Property rights conveyed Conditions of sale Financing terms Market conditions Locational characteristics Physical characteristics

Applying the sales comparison approach

Cost Approach

Estimating site value Estimating production cost

Reproduction cost Replacement cost

Estimating accrued depreciation Physical deterioration Functional obsolescence Economic obsolescence

Applying the cost approach

Income Approach

Gross income multiplier GIM = Value/Gross Income

Net income capitalization Capitalization Rate = Net

Income/Value Discounted cash flow