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| real estate appraisal | an estimate of the value of some interests/rights in real estate. (not just physical). unbiased written estimate of the fair market value of a property, usually referred to as the subject property at a particular time. |
| why appraisals necessary | Few transactions available to indicate value. Every property is unique- location, attributes. Large value of the assest makes errors costly |
| appraisal report | the document the appraiser submits to the client and contains the appraiser's final estimate of value, the data upon which the estimate is based, and the calculations used to get the estimate. |
| Market value | Most probable selling price, assuming “normal” sale conditions. Value for the “typical” market participant. 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 knowledgeable, 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. |
| Market value conditions | 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in United States 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 by anyone associated with the sale. |
| investment value | the value a particular investor places on a property. Based on expectation of investors. Buyer's is maximum willing to pay. Seller's is minimum willing to sell. |
| transaction prices | the prices we observe on sold properties. when investment value of buyer>investment value of seller |
| traditional appraisal process | Definition of the problem, Preliminary analysis and Data Selection and Collection, Highest and Best use analysis, Three approaches to value, Reconcilitation and final value estimate, Appraisal report |
| 1) Definition of the problem | -Type of market value (market, insurance, taxable); - Description of real property, description of physical property being valued, specific property being valued; -Date of valuation. The principle of change- Real estate is a dynamic market and social and economic forces are constantly causing changes that affect the value of the property. |
| 2) Preliminary analysis and data selection and collection | 1) Market analysis- general economic data(details past trends, current status, & forecasts future trends); International, national, regional, neighborhood, Intra-neighborhood and Site; Sales, building cost and income data. 2) Property specific information- topographic and other site info; Description of improvements |
| 3) Highest and best use analysis | Principle idea is that the market value of a property is a function of its most productive use. Property is always valued at its highest and best use. defined as that use found to be 1) legally permissible 2) physically possible 3)financially feasible 4) maximally productive. |
| Highest and best use of the land as though vacant | land, improved or not, is always valued as though vacant and available for development to its highest and best use. Value of land= total property-the value of any improvements |
| highest and best use of property as improved | should existing be retained, modified, or demolished. When seperate value of the land is not necessary. |
| 3 approaches to estimating market value | income approach, the sales comparison approach, and the cost approach. Each related to one another |
| sales comparison approach | applicable to almost all one- to four-family residential properties and even to some types of income-producing properties where enough comparable sales are available. easily understood by buyers and sellers. |
| income approach | the dominant approach when estimating the value of any income-producing type of property. assumes property value is determined solely by its expected future cash flows. |
| cost approach | necessary when good comparable sales or good income data are absent. Involves estimating the cost of the property new and then subtracting accrued depreciation. older structure=greater depreciation. for specialty properties such as education facilities, places of worship, parks, musuems, etc. |
| reconciliation and final value estimate | Appraisal process will result in 3 value indicators. In assigning a final (single) estimate of market value, the appraiser weighs the relative reliability of value indicators for the property being valued. |
| report of defined value/ appraisal report | Form report- often for real estate loan appraisals. Narrative appraisal- the longest and most formal of the appraisal formats and contains step-by-steps description of methods used. for gov't agencies & major investment properties |
| Uniform Standards of Professional Appraisal Practice(USPAP) | required and followed by all states and federal regulatory agencies. |
| traditional sales comparison approach | Rationale- the current market value of a property is best indicated by the sales prices of closely similar properties in the relevant market that have sold recently in arms-length transactions. When most applicable- for situations where closely similar properties in the relevant market are sold frequently. |
