Chapter 11

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Chapter 11

  1. 1. Chapter 11 Real Estate Appraisal
  2. 2. Appraisal Regulation <ul><li>FIRREA of 1989 </li></ul><ul><li>Appraisal Foundation </li></ul><ul><ul><li>AQSB </li></ul></ul><ul><ul><li>ASB </li></ul></ul><ul><li>Trainee appraisers </li></ul><ul><li>Licensed appraisers </li></ul><ul><li>Certified residential appraisers </li></ul><ul><li>Certified general appraisers </li></ul><ul><li>USPAP </li></ul><ul><ul><li>Standard 1 (and rules) </li></ul></ul>
  3. 3. What is Value? <ul><li>Market value </li></ul><ul><ul><li>Typically motivated parties </li></ul></ul><ul><ul><li>Well informed parties </li></ul></ul><ul><ul><li>Market exposure </li></ul></ul><ul><ul><li>Payment in cash </li></ul></ul><ul><ul><li>No special circumstances </li></ul></ul><ul><li>Investment value – worth to a particular investor based on that investor’s personal standards of investment acceptability </li></ul><ul><li>Price versus market value </li></ul><ul><li>Market value versus cost of production </li></ul><ul><li>Other types of value </li></ul><ul><ul><li>Assessed value </li></ul></ul><ul><ul><li>Insurable value </li></ul></ul>
  4. 4. Key Appraisal Principles <ul><li>Anticipation </li></ul><ul><li>Change </li></ul><ul><li>Substitution </li></ul><ul><li>Contribution </li></ul>
  5. 5. The Appraisal Process <ul><li>Definition of the problem </li></ul><ul><ul><li>Type of value-purpose </li></ul></ul><ul><ul><li>Description of property </li></ul></ul><ul><ul><li>Specific property rights </li></ul></ul><ul><ul><li>Effective date </li></ul></ul><ul><li>Data selection and collection </li></ul><ul><ul><li>General market analysis </li></ul></ul><ul><ul><li>Specific property analysis </li></ul></ul><ul><li>Highest and best use analysis </li></ul><ul><ul><li>As though vacant </li></ul></ul><ul><ul><li>As improved </li></ul></ul><ul><li>Application of the three approaches to valuation </li></ul><ul><ul><li>Sales comparison approach </li></ul></ul><ul><ul><li>Cost approach </li></ul></ul><ul><ul><li>Income approach </li></ul></ul><ul><li>Reconciliation of value indications </li></ul><ul><li>Report of defined value </li></ul>
  6. 6. Sales Comparison Approach <ul><li>Comparable sales data selection </li></ul><ul><li>Adjustment of sales data </li></ul><ul><li>Elements of comparison </li></ul><ul><ul><li>Property rights conveyed </li></ul></ul><ul><ul><li>Conditions of sale </li></ul></ul><ul><ul><li>Financing terms </li></ul></ul><ul><ul><li>Market conditions </li></ul></ul><ul><ul><li>Locational characteristics </li></ul></ul><ul><ul><li>Physical characteristics </li></ul></ul><ul><li>Applying the sales comparison approach </li></ul>
  7. 7. Cost Approach <ul><li>Estimating site value </li></ul><ul><li>Estimating production cost </li></ul><ul><ul><li>Reproduction cost </li></ul></ul><ul><ul><li>Replacement cost </li></ul></ul><ul><li>Estimating accrued depreciation </li></ul><ul><ul><li>Physical deterioration </li></ul></ul><ul><ul><li>Functional obsolescence </li></ul></ul><ul><ul><li>Economic obsolescence </li></ul></ul><ul><li>Applying the cost approach </li></ul>
  8. 8. Income Approach <ul><li>Gross income multiplier </li></ul><ul><ul><li>GIM = Value/Gross Income </li></ul></ul><ul><li>Net income capitalization </li></ul><ul><ul><li>Capitalization Rate = Net Income/Value </li></ul></ul><ul><li>Discounted cash flow </li></ul>

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