chapter 1: the. valuation process Flashcards
A tax appeal assignment will commonly involve a ____ effective date.
retrospective
Intended use affects both appraisal ____ and reporting.
development
A systematic procedure appraisers can employ to provide the answer to a client’s question about the value of a property is called the ____.
valuation process
In ____ analysis, the appraiser analyzes the ideal improvement for the property.
highest and best use
The relevant characteristics of a property are part of ____ the problem.
identifying
True or false: Scope of work is the type and extent of research and analyses in an appraisal or appraisal review assignment
true
True or false: identifying relevant characteristics of the subject property is specific data rather than general data.
true
True or false: the client and intended user are never the same
false
True or false: A prospective appraisal has an effective date contemporaneous with the date of the report
false
True or false: Developing an opinion of insurable value can be identified as the purpose of an appraisal assignment
true
What are the first four steps of the valuation process?
- identification of the problem
- Scope of work determination
- Data collection and Property Description
- Data Analysis
What are the six assignment elements that identify a client’s problem?
- identify the client and intended users
- Identify the intended use
- Identify the type and definition of value
- identify the effective date of the opinion
- identify the relevant characteristics of the property
- identify the assignment conditions
What are the three data types in the valuation process?
- Market area data
- subject property data
- comparable property data
valuation process
a systematic set of procedures an appraiser follows to provide answers to a client’s questions about real property value
client
the party or parties who engage an appraiser. by employment or contract in specific assignment, whether directly or through an agent
intended user
the client and any other party as identified, by name or rtpe, as users of the appraisal or appraisal review report by the appraiser, based on communication with the client at the time of the assignment.
identify the roles of the following parties in a FHA assignment for a bank with the intended use of assisting the bank in a lending decision:
a) Bank and its representatives
b )HUD/FHA
c) Appraisal Management Company (AMC)
d) Borroewer
a) client and other intended user
b) Intended user
c) May or not be an intended user
d) Not the client or intended user
Intended use
the use of an appraiser’s reported appraisal or appraisal review assignment results, as identified by the appraiser based on communication with the client at the time of the assignment.. Intended use affects both appraisal develop and reporting.
Indented use can affect the opinions and conclusions developed. Whats the difference in the two contrasting scenarios:
a) a lender requests an exterior-only appraisal of an owner’s property to be used for collateral purposes in an equity loan
b) a month later, the owner of thee same property retains an appraiser with an intended use to resolve a legal dispute in a jury jail
in the frist scenario, the appriser will carry out research/annalyses at a level commensurate with the intended use of an exterior-only appraisal.
in the second scenario, the appraiser’s research and analyses would be at a higher level under this new intended use, and the value opinion might differ from the one reached under the prior intended use.
Purpose of an assignment
the objective of an assignment – e.g., in an appraisal assignment, to develop an opinion of the defined value of a specified interest in real estate.
The purpose of Ann assignment us usually to develop an opinion of a certain type of value. what types of value could this include?
market value use value investment value insurable value assessed value fair value
Current effective data
the effective date is contemporaneous with the date of the report – doesn’t have to be same as appraisal report date but two dates should be fairly close. inspection date is often used by appraisers as effective date., especiallyt in mortage lending assignmeents
Retrospective effective date
appraisals with an effective date in the past–commonly used for estates (such as for probate), casualty loss, property tax appeal, and marriage dissolution
Prospective effective date
appraisals as of a future date– needed in assignments for proposed or renovated improvements when the value date is based on completion or stabilized occupancy–also used reversions at the end of a cash flow projection.
Statement of dates
Professional standards require that the appraiser state two dates in each appraisal report: the effective date and date of the report.
relevant characteristics
features that may affect a property’s value or marketability such as legal, economic, or physical chharacteristics
physical characteristics
attributes of a property that are observable or measurable as a matter of fact, as distinguished from opinions and conclusions, which are the result of some level of analysis or judgement.
Whats included when identifying the characteristics of the subject property that are relevant to the purpose and intended use of the appraisal ?
- relevent characterics - features that may affect a property’s value or marketability such as legal, economic, or physical chharacteristics
- physical characteristics - attributes of a property that are observable or measurable as a matter of fact, as distinguished from opinions and conclusions, which are the result of some level of analysis or judgement.
- its location and physical, legal, and econic characteristics
- the real property interest to be valued such as fee simple interest, leased fee interest, leasehold interest, or a partial interest
- any personal property, trade fixtures, leased solar photovoltaic systems, or intangible assets that are not real property but are included in the appraisal
- any known encumbrances, easements, leases, restrictions, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of similar nature
- wheather the subject of the appraisal is fractional interest, physical segment, or partial holding of property.
Extraordinary assumption
an assignment-s[ecific assumption as of the effective date regarding uncertain information used in analysis which, if found to be false, could alter the appraiser’s opinion or conclusions – something you don’t know that’s true to false but you assume its true
Special assumption
an assumption, directly applicable to a specific appraisal or review, which, if found to be false, could alter the options or conclusions in an appraisal or review
Hypothetical condition
this is a condition that is contrary to what exists but is supposed for the purpose of analysis – something that you know is false but you assume its true.
What are some other assignment conditions?
laws, regulations, guidelines, and other conditions that can affect the scope of work.
ex) FHA appraisal assignment would have assignment conditions based on regulations issued by the department of housing and urban development
Scope of work
the type and extent of research and analyses in an appraisal or appraisal review assignment– includes and not limited to:
- how extensively the. property is identified
- the level an extent that the tangible property is inspected
- the amount of research data required (i.e. collected, confirmed, and reported) and what type of data
- the type and extent of analyses applied
type of assignment
as the appraiser considers intended use, identification the assignment type is part of the process. does the evaluation require an appraisal or appraisal review? the assignment may include one or both of these services., as well as other services performed while acting as an appraiser.
type of property
this helps the appraiser identify wheather the assignment includes real property, personal property, intangible property, or moe than one of the these property types.
what’s the third steep in the valutation process?
data collection and property description.
What are the two types of data needed by appraisers when collecting data and property description?
- general data
2. specific data
General data
data that relates to the four forces that affect real property value– social, economic, governmental, and environmental forces
Specific data
Details about the property being appraised, comparable sale and rental properties, and relvevent local market characteristics
Market area data
data that falls into category of general data and focuses on trends that are affected by the four forces that influence value
Trend
a series of related changes brought about by a chain of causes and effects. trends are forecast through economic base analysis, statistical analysis, market analysis, and analysis of economic indicators and surveys.
Market area trends as general data can include population shifts, declining office buildings occupancy rates, and increased housing starts.
subject property data
- relevant geographic and geologic characteristics of the land or site and characteristics of the improvements (such as type of building, physical components, legal comments, and personal property)
- ownership history
- cost and depreciation data
- income and expense data
comparables
a shortened term for similar property sales, rentals, or operating expenses used for comparison in the valuation process. in best usage, the thing being compared should be specified, e.g., comparable sales, comparable properties, comparable rentals
Comparable property data
- comparables
- physical and legal components
- sale date and price, cost, and depreciation date, income and expense data, capitalization rates
- fiancing arrangements that could affect selling price
- supply and demand data pertaining to comparable properties
- –supply data: inventories of existing and proposed competitive properties, vacancy rates, and absorption rates
- –demand data: population, income and employment data pertaining to potential property users and the impact future demand might have on the present (or proposed) use of properties comparable tp subject property
Market analysis
the study of the supply and demand in a specific area for a specific type of property
