Exam 1 Flashcards
Real estate appraisal is
the act or process of developing an opinion of value
A real estate appraiser is
the person that derives estimates of value on real property (must be licensed)
Appraisal reports are
Document providing an opinion of value, These are usually in writing, but may be given orally, The appraiser must have documentation in his/her files for any appraisal
keys to being an effect appraiser
o Competent (education and experience)
o Independent, impartial, and objective
o Must be an apprentice
different report forms:
- Oral: Ex: court
- Form: this is considered to be a summary report, Ex: uniform residential appraisal report
- Narrative: Ex: self-contained report (long written commercial report)
what other fields can appraisers work with
- Accountant: taxation
- Attorney: court
- Mortgage lender/banker: biggest need for appraisals
- Developer: borrow tons of money
- Real estate salesman/broker: get homes sold and financed
- Forester: become appraisers of land (trees)
- Surveyor: mapping
appraisal fees:
- are negotiable in most cases (not with veteran admin and DOT)
- Commercial brings higher fees than residential
- Fees cannot be subject to a predetermined value (would be a conflict of interest)
trainee
you have to apprentice
licensed
first real license where you can do your own job, 2,000 hours of work
- Can appraise: Noncomplex: up to $1,000,000, simple properties (ex: 3 properties on the same lot)|Complex: up to $250,000, not easy to find data on
certified residential
can do any residential property
certified commercial
can do any commercial property, 3,000 hours of work, half must be in commercial
appraisal became a real profession
July 1st, 1991
real estate is
land and its attachments
Uniform appraisal dataset (UAD)
Supports improved “standardization” of residential appraisals, So “condition” and “quality of construction” are more specific
Freehold estates
Fee simple estate
Life estate
Life estate
ownership is tied to life
Used for children and elderly
Cannot transfer the title
Fee simple estate
when you own the property
Non-freehold estates
Leasehold estate: tenant based interest
Leasehold fee estate: landlord based interest
Leasehold estate
tenant based interest
Leasehold fee estate
landlord based interest
value is
what its really worth
price is
what you sell it for
cost is
what you build it for
valuation principles:
- Anticipation
- Competition
- Conformity
- Contribution
- Externalities
- Substitution
- Supply and Demand
- Highest and best use
Anticipation
you anticipate future benefits to get the value
o Rent is the benefit
Competition
can raise prices during inflation, can also lower them
conformity
better to conform, the average buyer wants what is typical
o Don’t add onto your home in a cookie cutter neighborhood
contribution
every component contributes to the value
externalities
outside of the property affect the value
o Progression: you get more per square foot because your house is smaller
o Regression: you get less per square foot because you have a bigger house
substitution
principle behind sales and cost approach, no one will pay more than the cost of the equal substitute
supply and demand
o More demand value increases, less demand value decreases
o More supply value decreases, less supply value increases
Market Value
most probable sales price
sales price
the price a property sells for on the open market (ex: transaction price)
THE DEAL HAS TO BE
ARMS LENGTH
HOW ARE VALUES CONSIDERED ARMS LENGTH
5 WAYS (EXAM QUESTIONS)
BUYER AND SELLER ARE
TYPICALLY MOTIVATED
BOTH PARTIES ARE ___ ___ AND ACTING IN THEIR BEST INTERESTS
WELL INFORMED
THE PROPERTY HAS A REASONABLE
EXPOSURE TIME ON THE MARKET (Appraiser should be able to tell if a property is priced right)
PAYMENT IS MADE IN ___ OR ____ ____ THAT ARE COMPARABLE
CASH OR FINANCIAL ARRANGEMENTS
- Loan, commercial real estate
- People try and wrap the business loan in with the real estate loan
- Can’t have personal property involved
CREATIVE FINANCING OR SALES DID NOT
AFFECT THE PRICE
investment value
the value to one given investor, can be different than market value
Assessed value
what the town thinks the property is worth, Value for property taxation, on a county level
Business value
can be different than real estate value:
- Includes patents, trademarks, copyrights, and equipment
- Going concern value is the same thing
- Includes personal property
Book value =
cost – depreciation, Used for taxation
Quick sale value
selling the property quick, Also called liquidation value (Likely during foreclosures)
Growth
increase in value of property
EQUILIBRIUM
: when neighborhoods or commercial are 10-30 years old
- SLIGHT INCREASE DURING THIS PERIOD BECAUSE OF INFLATION
- SLIGHT INCREASE DURING THIS PERIOD BECAUSE OF INCREASING POPULATION AND DEMAND
- Or still desirable so still demand (location, location, location)
- mature propertties
- offices still stay good in commercial
Decline
decrease in the value of the property
Revitalization
Neighborhoods come back because stuff gets cheap enough for an investor to come in and remodel it to make a return and the cycle starts over
highest and best use
The reasonable and probable use for a property that will support the highest present value of the land
As vacant
look at it with what they are gonna do proposed in the future or vacant as in tore down
As improved
- is the present improvement the highest and best use
98% present use is the best because it’s the most profitable and other people did what they did on that lot for a reason - if someone destroyed it - would we in turn want to rebuild the same exact thing there
- constantly changing uses is not good and a red flag (we don’t like those)
interim use
a use in change → residential is turning into commercial
The four test for highest and best use:
Physically possible
Legally permissible
Financially feasible
Maximally productive
Legally permissible
Is the property’s use legally permitted? Does it meet zoning requirements
Financially feasible
Can you make rent?
Is the present use financially feasible?
Only properties not financially feasible are properties with environmental problems
If you can get a loan or you can rent it, it is financially feasible
Maximally productive
Is the present use maximally productive?
Physically possible
Does property fit on the land
Utilities are needed
Access
Over improvement - too big for neighborhood
Under improvement - not big enough for the neighborhood
Over improvement
too big for neighborhood
Under improvement
not big enough for the neighborhood
Legal Description of appraisal
A satisfactory description of the property created by a surveyor and written by an attorney
3 types of map drawing
- meat and bounds
- lock and block
- governmental survey system
meat and bounds
original surveying of the 13 colonies
lock and block
done for cities and neighborhoods, Block bunch of lots between two streets
governmental survey system
western united states using parallel lines and meridians and lawyer has to write in it
zoning
Regulation of the size and intensity of the real estate, major areas of zoning ordinances
Land use regulation
Separation of land uses (commercial v industrial v residential)
Height regulation
The tallest you can build a building
Area regulation
Where on the land can you build
Why does zoning matter to appraisal?
Helps determine prices
Taxation:
Right of the government to tax real estate for the right to provide public services
Tax Assessor
Paid appraiser
Assessed Value
Value for property taxation
Ad Valorem Taxes
Taxes based on value
Mass Appraisal:
Appraisal technique of tax assessors, using big data
Easements
legal right to use and enjoy others land
What types of easements are most commonly appraised?
Road right of ways
Utilities: putting them in
Eminent Domain
the taking of land by the government
What is the process called of eminent domain
condemnation or condemned, Why does this matter to appraisers
- We go to court and value these
what do you pay for “Just Compensation”
- Fair market value of the property taken.
- Damages that occur to the remaining property (remainder) that is not taken
- Moving expenses if applicable (established by Congress in 1970)
total taking
taking the whole property (everything), 1 appraisal, all relevant approaches are used, no damages awarded
no taking
easement, underground (pipelines), power lines, utilities, 1 appraisal, all relevant approaches used, no damages awarded
partial taking
road, maybe power lines, taking part of the property, 2 appraisals (1 before and 1 after), all relevant approaches used, damages are awarded if the remainder is with less per soft or acre after
before and after method
This requires two appraisals:
- One appraisal is the value of the original property before there taking
- second appraisal is the value of the remainder after taking and the easement is in place
- Subtract the remainder value from the original property value of the similar sized parcel to obtain the severance damages
Urban Sprawl
moving out go the city (comes with congestion and pollution)
scoring system
110 total points, need 40 points to qualify
LEED
leadership in energy and environmental design
What LEED Measures
Location and Transportation, Sustainable sites, Water efficiency, Energy and atmosphere, Materials and resources, and Indoor environmental quality
Location and Transportation
- Minimize parking lots/ garages
- Bicycle and electric car facilities
- Locate near commuter bus and rail stops
- Avoidance of sensitive land
Sustainable sites
- Maximize green space ( open)
- Minimize heat island effect
- Storm water design ( rain gardens and basins)
Water efficiency
- Cut water efficiency by 20% over the baseline amount in the cetticaiton
- Efficient water incentives:
- Sensors on plumbing
Energy and atmosphere
- Better energy performance
- Motion detectors for lighting
- Energy start light bulbs
- Manage refrigerants and eliminate CFC
- Use renewable energy sources such ass solar wind and biomass
Materials and resources
- Reuse of original historic building materials
- Use of materials from rapidly renewable resources
- Use of regional materials
Indoor environmental quality
- Use controls and sensors to regulate temp, ventilation and lighting
- Day lighting
- Eliminate VOC’s
- Limit smoking
wood vs concrete vs steels
wood is cheaper, steel is stronger on tall buildings (over 4 stories you have to use steel for strength)
