Chapter 21 Real Estate Appraisal Flashcards
Latent value
The current use us not at it’s best/ highest
“Subject of an appraisal”
Legal rights of ownership vested in a certain piece of real estate
Principle of negligent misinterpretation
Ex: an appraiser appraised a property for the bank then the loan officer showed it to the buyers. The house later on was found out to have pests. THERE’s NO PRIVITT OF CONTRACT between the appraiser and the buyer therefore they can’t have remedy against the appraiser, but can use the PRINCIPLE OF NEGLIGENT MISI TERPRETATION!
Market value
The price the property might reasonably be expected to realize when sold in an arms length transaction.
The amount of depreciation
Is the most difficult to assess when appraising older buildings using the cost approach
Supply and demand of real property
🔵the price of real property increases, the supple increases
🔵the price increases, demand increases
🔵absolute supply of real land is fixed and CAN be altered
🔵real property is fixed in location
Objective value- value that can be verified by a third party
Insurable value
Lending value
Market value
Actual value
Value in exchange
Sale price
Determinants for the value of property
Rights of ownership
Physical property
Short tern national general economic factors
Interest rates on treasury bills
Consumer expectations
Significant characteristics of improved land
Immobility
Durability of it’s improvements
Flow of information concerning real property is limited because:
🔵Turnover is slow
🔵Every parcel is heterogenous
🔵Real property is durable and longlasting and not quick to respond to market pressures
🔵markets are local with real estate fixed in location
Comparative approach
Is based on the principle of substitution
Factors that will affect the value of residential real property in the short-run?
Change in mortgage interest rates
Factors affecting value of residential real property in the long run?
Shifts in age composition of the population
Shift in the balance of trade between countries
The supply and cost of raw materials and energy
Market analysis
🔵indicate current status of the subject property in relation to trends in property values
🔵to confirm the comparable properties have been selevted from the same marker as the subject property and are subject to the same market forces
🔵to provide the client with an appreciation of the socio-economic determinants of supply and demand
Value to the owner
Maybe used in investment analysis
Appraisal also know as
Property valuation
Is an estimate- opinion of value, there is a degree of subjectivity as long as supported by logical rationale, underpinnes by objective analysis of market information
Who needs appraisal
Investor seeking the value of property
Mortgage lenders
Registrant listing a property for sale
Factors influencing marker value
Economic
Political
Physical
Social
Market value is the product of two property elements
🔵rights of ownership
🔵physical property
APPRAISAL
The value of legal interests in real estate is estimated
Legal interests in a property
Legal rights of ownership-subject of appraisal
Fee simple ownership Leasehold estate Condominium ownership Air space rights Easements (hyrdro right-of-ways)
Appraiser can use disclaimers
To reduce their scope of liability
Appraisal process
🔵defining the appraisal problem 🔵scope of work determination 🔵data collection 🔵data analysis 🔵select the appropriate approach 🔵reconciliation of value indications and final opinion of value 🔵communicate findings
The site analysis should consider these factors:
Physical Location Legal Economic Environment
Supply of real property(land and improvements) can be altered by changing the use of a parcel of real property
🔵the supply of real property cannon be increased or decreased rapidly
🔵the supple of real property is fixed in location
Any given region may be classified into Real estate markets accdg to:
Location
Land use
Price
Real estate market is an imperfect market
🔵small number of buyers and sellers relative to the amount of properties
🔵uniqueness of each parcel
🔵the lack of info for buyers and sellers
🔵the fact that nor all buyers and sellers strive for the most profitable bargain
Direct comparison approach/ comparative/ market
Principle of substitution
Cost approach
The simplest and most precise yet least exact approach to use because:
It’s hard to accuartely measure depreciation in older building
The cost of the building may not directly relate to how the market perceives its value
How to communicate final analysis of data?
Orally or written
Narrative
Short form narrative
Form report- usually used by financial institutions
Comparative market analysis (CMA)
Narrative style report prepared by a licensee for the seller to establish an estimated market value and in turn recommend a price for the listing
