Basic Appraisal Procedures (Course 4)

Pregunta	Respuesta
Valuation Process	A systematic set of procedures an appraiser follows to provide answers to a client's questions about real property value.
Steps of the Valuation Process	1. Define the problem 2. Determine the scope of work 3. Gather, record, and verify the data 4. Determine the highest and best use 5. Estimate the land value 6. Estimate value by each of the three approaches (if applicable) 7. Reconcile the estimated values into the final opinion of value 8. Report the final opinion of value
Sub-steps of Defining the problem	1. Identification and location of the real estate 2. Identification of the property rights 3. Definition of value 4. Purpose and intended use of the appraisal 5. Effective date of the opinion of value 6. Any special limiting conditions
Real property	An interest or interests in real estate.
USPAP: market value	USPAP does not define market value, but outlines it and requires the appraiser to identify the type and definition of value.
Effective Date	The effective date of value can be a past (retrospective) current, or future (prospective) date. Typically the date the appraiser inspects the subject property.
Extraordinary assumption	an assignment-specific assumption as of the effective date, which if found to be false, could alter the appraiser's opinions or conclusions.
Hypothetical condition	A condition directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for purpose of analysis.
Workfile contents	1. Name/ID of client 2. true copies of all written reports 3. Summaries of oral reports or testimony 4. All other data to support appraiser's conclusions 6. Needs to be retained for at least five years after preparation or two years after final disposition
General Data	Data that relates to the four forces that affect real property values - social, economic, governmental, and environmental forces. Tends to influence all properties in an area equally.
General Data Forces	The closer and more proximate influences tend to exert the greatest pressure.
Specific Data	Details about the property being appraised, comparable sale and rental properties, and relevant local market characteristics.
Sources of General Data	1. Government 2. Trade associations 3. Utility companies 4. School districts 5. Universities 6. Departments of transportation 7. Planning boards 8. Multiple listing services 9. Chambers of commerce
Trade Associations	1. National Association of Homebuilders (NAHB) - Construction trends 2. Realtor.org - realty stats 3. Appraisal Institute - appraisal news and info
Sources of Specific Data	1. Deeds 2. Location maps 3. Tax maps 4. Flood maps 5. Assessor's records 6. Title companies 7. Zoning ordinances 8. Multiple listing services
Specific Data provided by the deed	1. Legal description 2. Owners of record 3. Easements of record 4. Deed restrictions 5. Chain of title (when the property was purchased and from whom)
Flood maps are prepared by...	The Federal Emergency Management Agency (FEMA). The Special Flood Hazard Areas are designated as zones A or V.
Site	Improved land or a lot in a finished state so that it is ready to be used for a specific purpose. (Land is raw, site is improved.)
Total property value	A combination of the value of the site and the value of any building improvements on the site.
Separate site valuations may be required in...	Cost approach Assessments and taxation Condemnation appraisals Certain income capitalization methods Highest and best use
Cost Approach	Summation Approach
Depreciated Value	Cost to build new - depreciation
Condemnation Appraisals	Used for compensation when eminent domain is exercised.
Brownfield	Real property for which the expansion, redevelopment, or reuse of the real estate may be complicated by the presence of environmental contamination that needs to be remediated to appropriate regulatory standards.
The most common contaminant	Petroleum
Extraction Method (Abstraction Method)	A method of estimating land value in which the depreciated cost of the improvements on an improved property is calculated and deducted from the total sale price to arrive at an estimated sale price for the land.Good application in many older urban areas and property where the underlying land has more of a contributory value.
Allocation Method	A method of estimating land value in which sales of improved properties are analyzed to establish a typical ratio of land value to total property value and this ratio is applied to the property being appraised or the comparable sale being analyzed.
Land Residual Method	A method of estimating land value in which the net operating income attributable to the land is isolated and capitalized to produce an indication of the land's contribution to the total property.
Ground Rent Capitalization Method	Applied by capitalizing ground rent at a market-derived rate. This method is useful when comparable rents, rates, and factors can be developed from an analysis of sales of leased land or other market sources.
Relative comparison analysis	A less precise application of the sales comparison method; analyzing the comparables to determine whether each one is, overall, superior, equal to, or inferior in comparison to the subject.
Ranking analysis	A variant of relative comparison analysis; comparable sales are ranked in ascending or descending order.
"Prairie Style" Homes	We see the first one-story homes in the early 1900's, with Frank Lloyd Wright's "Prairie Style" homes. Primarily one floor, but were large, architect-designed custom homes.
Five basic housing types	1. Ranch - 1 story 2. Cape Cod - 1-1/2 story 3. Two-story 4. Split level - multi levels 5. Split entry (sometimes called a split foyer, bi-level, or raised ranch) - one story with finished basement. Two-stpry bi-level from Marshall and Swift
Manufactured Home	A factory-built house manufactured under the Federal Manufactured Home Construction and Safety Standards Act of 1976, commonly known as the HUD Code. Each HUD code manufactured home has a label on the exterior of each section containing a 3-letter desig. plus a 6 or 7 digit number.
Modular Home	A factory-built house built in compliance with a building code other than the HUD Code. Constructed on a permanent steel chassis and has wheels and axles.
Gross Living Area	Total area of finished, above-grade space.
Gross Building Area	Total floor area of a building, excluding unenclosed areas, measured from the exterior of the walls of the above grade area. This includes mezzanines and basements if and when typically included in the market area of the type of property involved.
Soil Maps	Based on aerial mapping rather than site-specific soil testing. From the Natural Resources Conservation Service.
Wood foundations	Most popular foundation walls in Canada
Parging	Troweled-on Portland cement applied to the exterior of concrete block walls.
Girders	Main support beams that are set in pockets that are formed in the top of the end walls of the foundation.
Most popular framing	Platform framing
Headers	Built over the openings to spread the load out to the sides and prevent the windows and doors from getting crushed or sticking.
Current Siding	Fiber-cement siding.
"R" Factor	The measure of resistance to heat transfer. An inch of wood has an R factor of 1.
Increase the insulating capacity in modern windows	Filling the air cavity between the panes of glass with gas, typically Argon gas.
Electric Heat Pumps	Reversible air conditioners.
Knob and Tube	The earliest type of wiring in a house.
Cost Approach Formula	Reproduction of Replacement Cost New - Accrued Depreciation + Site Value = Property Value
Cost Approach	The value indication is derived for the fee simple estate by estimating the current cost to construct a reproduction of (or replacement for) the existing structure.
Reproduction Cost	The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescence of the subject building.
Replacement Cost	The estimated cost to construct, at current prices as of the effective appraisal date, a building with utility equivalent to the building being appraised, using modern materials and current standards, design and layout.
Entrepreneurial Incentive	The amount an entrepreneur expects to receive for his or her contribution to a project.
Cost Approach is Most Applicable	1. A lack of market activity precludes the use of the sales comparison approach 2. The property is not typically income-producing and the income capitalization approach is not pertinent 3. The building improvements are new or relatively new 4. The land value is well supported 5. The improvements represent the highest and best use of the land as though vacant 6. Estimating the use value of special purpose properties 7. Building additions or renovations are being considered 8. The appraisal requires that land and improvements be valued separately, such as for insurance or accounting purposes 9. Land value is a significant
Most Common unit of construction costs	Cost per square foot (SF)
Major Cost Estimating Services	1. Marshall & Swift 2. F.W. Dodge Corporation 3. RS Means Company, Inc.
Direct Costs	Expenditures for the labor and materials used in the construction of improvements; also called hard costs.
Indirect Costs	Expenditures or allowances for items other than labor and materials that are necessary for construction, but are not typically part of the construction contract.
Entrepreneurial Incentive	The amount an entrepreneur expects to receive for his or her contribution to a project.
Traditional Cost Estimating Methods	1. Comparative-unit methods 2. Unit-in-place method 3. Quantity survey method
Comparative-unit method	Costs expressed in terms of dollars per unit of area or volume. Simplest, quickest, least complicated, and least accurate.
Unit-in-place method	Total building cost is estimated by adding together the unit costs for the various building components, aka the segregated cost method.
Quantity survey method	The quantity and quality of all materials used and all categories of labor are estimated, and unit cost figures are applied.
Functional Obsolescence	The impairment of functional capacity of improvements according to market tastes and standards. It is possible for a brand-new structure to have built in obsolescence.
External Obsolescence	A type of depreciation, caused by negative external influences and generally incurable on the part of the owner, landlord, or tenant. The external influence may be either temporary or permanent.
Effective Age	The age of property that is based on the amount of observed deterioration and obsolescence it has sustained.
Age-Life Method	Effective Age/Total economic life x total cost = depreciation
Deferred Maintenance	Items of wear and tear on a property that should be fixed now t protect the value or income-producing ability of the property.
Sales Comparison Approach	1. Research the market 2. Verify the information 3. Select relevant units of comparison 4. Identify differences and make adjustments 5. Reconcile the value indications
10 Basic Elements of Comparison	1. Real property rights being conveyed 2. Financing terms 3. Conditions of sale 4. Expenditures made immediately after purchase 5. Market conditions 6. Location 7. Physical characteristics 8. Economic characteristics 9. Use 10. Non-realty components of value
Comparative analysis	The process by which value indication is derived in the sales comparison approach
Paired Data Analysis	A quantitative technique used to identify and measure adjustments to the sale prices or rents of comparable properties. Paired sales analysis.
Relative comparison analysis	A qualitative technique for analyzing comparable sales; used to determine whether the characteristics of a comparable property are inferior, superior, or similar to those of the subject property.
Buydown	A lump-sum payment to the lender that reduces the interest payments of the borrower.
GBA vs. GLA	GLA is used for SFRs, whereas GBA is used for 2-4 unit residential properties.
Overall Capitalization Rate (Ro)	The relationship between a single year's net operating income expectancy and the total property price or value (Ro = Io/Vo)
Excess Rent	The amount by which contract rent exceeds market rent at the time of the appraisal.
Deficit Rent	The amount by which market rent exceeds contract rent at the time of the appraisal.
Types of Variable Expenses	Management fees, utilities, payroll, decorating, supplies, maintenance and repair, trash removal, miscellaneous, replacement allowance
Potential Gross Income	The total income attributable to property at full occupancy before vacancy and operating expenses are deducted.
Effective Gross Income	The anticipated income from all operations of the real estate after an allowance is made for vacancy and collection losses and an addition is made for any other income.
Direct vs. Yield capitalization	Direct - A "snapshot" of value Yield - takes in account the income over a holding period (potentially several years)
GRMs vs. GIMs	GRMs used for smaller income properties (1-4 units), GIMs used for larger multi-unit residential properties and other income producing properties of any kind.

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Basic Appraisal Procedures (Course 4)

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