Lesson 1: Learning Objectives Flashcards
1.1 Discuss the reasons why real property appraisal is necessary and the basis for appraisal being recognized as a profession
A key part of buying or selling a house, a home appraisal is an independent, unbiased assessment of how much a property is worth.
Appraisals are necessary when buying and selling a home because banks won’t lend money if the appraised value of the house is less than the loan amount.
1.3 Distinguish between the concepts of real estate, real property, and personal property
- Real estate” is immobile and tangible; it includes land and all things attached, whether natural or
human created - “Real property” includes all interests, benefits, and rights inherent in ownership.
- A right or interest is also referred to as an estate in land, is determined by duration and may be either
freehold or leasehold. - The total range of ownership interests is called the “bundle of rights”.
- Ownership bundle consists of the right to: use, sell, lease, enter, give it away or do nothing. Each
may be separated and traded in the market.
1.4 Identify the difference between fixtures and chattels
A fixture is deemed to form part of the land or building. A chattel retains its independence and can be removed.
A chattel does not pass onto the purchaser when the land or building is sold.
1.5 Distinguish between the purpose and intended use of an appraisal
- The purpose is the stated reason and the establishes the scope of the assignment.
- Established by the client, explaining what they want answered about the property.
- Values sought can be: market value, fair value, assessed value, use value, investment value, business
value or other types of value as defined by the client and the appraiser. - Purpose establishes the foundation of the final value conclusion.
- Intended Use is how the client will use the appraisal information for their needs, such as: market
value for sale or purchase purposes, investment value, assessed value, to assist in setting lease rates,
for government expropriation, etc. - The date of the appraisal must always be shown as forces on any given day can affect a property’s
value
1.6 Explain the difference between market value, market price, and cost of real estate
- Price is the amount agreed upon by both buyer and seller for a good or service and subsequently paid.
- Cost is cost of construction or overall development cost, including profit.
- Value is the anticipation of benefits to be obtained in the future and can change over time.
- The type of value must also be defined: market, assessed, investment, etc.
- Cost is not value.
1.7 Define market value and explain how it relates to other definitions of value that an appraiser might be asked to find
Market value, a major focus in most real estate transactions and defined as:
“The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other
precisely revealed terms, for which the specified property rights should sell after reasonable exposure
in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each
acting prudently, knowledgeably, and for self interest, and assuming that neither is under undue
duress.”
1.8 Discuss the concepts of immobility, durability, indivisibility of services, and divisibility of ownership with respect to land value
Immobility - is an important and unique characteristic of land, which has a significant impact on its value. Since land cannot be moved, where the land is located will have an enormous influence on its value. Additionally, property taxes levied on land can vary significantly from location to location.
durability - Another characteristic of land is its indestructibility or permanence. In the real estate market, it’s one nature of land which states it cannot be destroyed. In other words, the value and appearance of land can change depending on the changing conditions around it. But as far as the house is concerned, its size, shape, and durability remain the same.
indivisibility of services - Development, change density leads to change value.
Divisibility of Ownership - can be divided physically and legally
1.9 Explain the impact and potential benefits of professional standards, such as the Canadian
Uniform Standards of Professional Appraisal Practice (CUSPAP), in valuation work
- In Canada, the Appraisal Institute of Canada (AIC) is the major appraisal organization that sets
standards for education appraisal practices. - The Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) is a set of appraisal
standards that must be followed by all members of the AIC. - These standards can be viewed on the AIC website.
- Members will complete appraisal reports, or carry out consulting or appraisal review for clients, all
of which are governed by the CUSPAP guidelines. - The AIC also requires members to re-certify by taking various courses which are appraisal specific or
related to real estate in some manner. - Appraisal practice includes Appraisal, Appraisal Review and Appraisal Consulting. See Chapter 27
for more information.
- 2.1 CONCEPTS OF LAND
- Geographic and Environmental
- Each parcel is unique in physical attributes and location which impacts its utility and highest and best
use. Adjacent properties are still considered unique. - Various processes such as physical, chemical, biological, and socioeconomic affect human habitation
and activity on land. This in turn affects the value of the land. - Land has many uses including agricultural, commerce, residential, and recreational.
- Land use is affected by climate, topography and distribution of natural resources, population,
industry, and current trends in these areas. - Land’s geography provides the background that appraisal requires regarding natural resources,
location of industry, actual and potential markets.
1.10 Discuss how AIC’s First Principles of Value and
Professional Competencies help to guide and shape the development of Canadian valuation professionals
There are many aspects of real property consulting. Without suggesting any limitations, this field of work may include valuation, use strategies, feasibility studies, litigation strategies, academic pursuits, and forecasting and strategic implementations.
Even these examples can be expanded and refined.
PROBLEM IDENTIFICATION PROPERTY CONTENT LEGAL CONSIDERATIONS HIGHEST & BEST USE RESEARCH ECONOMIC ANALYSIS
However, a common thread in each real property discipline is the need to understand the effect on real property of the interrelationships between forces of economics, law, and the marketplace. The reliance
on various Principles allows for a focused and disciplined approach to the requisite analyses across the broad spectrum of assignments that valuation professionals may be asked to complete. Furthermore, a common understanding of these principles and their
impact on value will enhance communication between valuation professionals and their clients.
CONCLUSION
These Principles of Value represent the fundamental concepts underpinning the work of real property valuation professionals. They are applicable to all valuation work, no matter what the specialization. Depending on the assignment, some First Principles may be more prevalent than others, but knowledge of all the First Principles and the ability to apply them correctly is universally paramount in the field of real property valuation.
- 2.3 CONCEPTS OF LAND
- Economic
- Land ownership has rights that can be legally limited by government statutes.
- Land ownership is a form of wealth and therefore, an object of value.
- 2.4 CONCEPTS OF LAND
- Social
- Modern society is concerned with land use and how rights are distributed because land is fixed in
quantity. But land can be modified, destroyed and sometimes created. - Increased demand puts pressure to use land more intensively.
- Laws are intended to serve the public good.
- Currently the principle restrictions on land use in Canada arise from planning and zoning provisions.
- Changing land use controls affect the nature and extent of private ownership, hence values.
- Land use controls determine what and where development can occur and those activities allowed
subsequent to development. Recent efforts include increased air and water regulation.
