©OnCourse Learning. All Rights Reserved.. Real Estate Appraisal ©OnCourse Learning. All Rights Reserved. Chapter 21

©OnCourse Learning. All Rights Reserved.

Real Estate Appraisal


Chapter 21


In This Chapter

You will study the three approaches to estimating value.

Formal Appraisal

“an independently and impartially prepared written statement expressing an opinion of a defined value of an adequately described property as of a specific date, that is supported by the presentation and analysis of relevant market information.”


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


Valuing a House Market Comparison Approach


Competitive Market Analysis


Building Sales Price GrossAnnualRents

Gross RentMultiplier

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

As a Group:

$196,000

$805,000

$27,762

$115,002

= 7.06

= 7.00

Calculating Gross Rent Multiplier


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

Costs Approach to Value


Estimating Depreciation Physical deterioration

wear and tear through Functional obsolescence

outmoded equipment, faulty or outdated design, inadequate structural facilities & overadequate structural facilities

Economic obsolescence loss of value due to external forces


Square-foot Method of Cost Estimating


Income / Rate = Value

$18,000 / 0.09 = $200,000

Income ApproachVariation by Direct Capitalization


Projected Annual Operating Statement (Pro Forma Statement)


IncomeOverall Rate

= Value

$45,4000.09376

= $200,000

Direct Capitalization Using an Overall Rate



Residential real estate = 27.5 years

Overall Rates - 10-year Holding Period, 25-year Loan for 75% of the Purchase Price, 10% Investor Return


Final Appraiser’s Value Reconciliation of Approaches Appraiser’s Best Estimate Choice of Approaches


Appraisal Regulations The Appraisal Foundation Federal Regulation Developing the Appraisal Appraisal Standards – USPAP Departure Provisions Appraisals Required Reporting Standards


Reporting Options 1. The self-contained Appraisal

Report, which is the most detailed and encompassing of the report options.

2. The Restricted Report, there is only a minimal presentation of information and it is intended for use only by the client.


Appraisals Review Report state the identity of the client state the intended use of the appraisal review state the purpose of the appraisal review state information sufficient to identify the work

under review state the effective date of the appraisal

review state all extraordinary assumption and

hypothetical conditions


New Appraisal Regulations

appraisal management companies requiring the lenders to pay customary and

reasonable fees to appraisers without specifying any amounts


1. Letter report

2. Form report

3. Narrative report

4. Review appraisals

5. Real Estate Analysis

Formats of Appraisal Reports


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


Texas appraiser licensing and certification board requirements


http://www.talcb.state.tx.us/Appraisers/default.asp

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.

BROKER’S PRICE OPINION COMPARATIVE MARKET ANALYSIS


HIGHEST AND BEST USE

That use that will give the property its greatest current 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

Principles of Value


Value

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


Markets Buyer’s market – excess supply of housing

for sale. Seller’s market – demand exceeds supply.


Professional Appraisal Societies American Institute of Real Estate Appraisers

(AIREA) Society of Real Estate Appraisers Appraisal Institute - MAI National Association of Independent Fee

Appraisers Farm Managers and Rural Appraisers National Society of Real Estate Appraisers American Society of Appraisers.


Key Terms Appraisal Capitalize Comparables Cost approach Depreciation FIRREA Gross rent multiplier

Highest and best use Income approach Market approach market data approach Market value Operating expenses Projected gross USPAP


Documents

©OnCourse Learning. All Rights Reserved.. Real Estate Appraisal ©OnCourse Learning. All Rights Reserved. Chapter 21