Module 1 & 2 Flashcards
3 approaches to an opinion of value
income capitalization, cost estimate of constructing, and sales comparison
6 steps in valuation process
1) identify problem 2) scope of work 3) data collection/property description 4)data analysis 5) land value opinion 6)application of 3 approaches 7)reconciliation 8) report of defined value
Step 1: Id Problem
1) identify client & intended users 2) identify use 3) identify purpose (type of definition of value) 4) identify effective date (present, past, or future) 5) identify relevant characteristics 6) identify assignment conditions (hypothetical condition, extraordinary assumptions)
Step 3: Data analysis
market analysis: demand studies, supply studies, & marketability studies
highest & best use analysis: land as vacant, ideal, improvement property as improved
Intended Use
what will the clients do with the appraisers opinion stated in the appraisal report? court action? home equity loan? estimated damage from pollution? settle estate or value trust or biz separation?
Purpose
Definition of value
ex. market value (common); use value (particular use); insurable value (insurance); and the investment value (investor, justify in paying the price higher than non adjoining owners); and assessed value (tax assessing authority; rep % of market value)
Date of report signed
= effective date of appraisal & date of the report
Must identify characteristics of property that are relevant
*location, physical, legal, and economic attributes
*real property interests to be valued such as fee simple interest, leased fee interest, & partial interest
*personal property - trade fixtures, leased solar photovoltaic systems or intangible items that are not real property but are included in the appraisal
*any known easement, encumbrance, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of similar nature
*is the subject of the appraisal fractional interest, physical segment, or partial holding of a property
*property rights appraised fee simple, leasehold, and life estate, etc.
Assignment Conditions
*extraordinary assumption (address uncertain as effective date)
*special assumption (an assumption directly applicable to specific service)
*hypothetical condition (contrary to what exist but is supposed for purpose of analysis)
*other assignments (laws & regs, DOT, IRS, HUD,
Data Collection
*Market Area - 4 forces that influence value (economic, environmental, social, and govt)
Sources of Data
Government all level, AI, banks, universities, DOT, planning boards, MLS, chambers of commerce, tax records info, zoning ordinance
subject property data
*zoning, taxes, & flood zone
*physical, legal, economic, and location attributes
may include - measurements, observations (# of bedrooms and condition), type and quality of construction
employment of extraordinary assumption
when data is missing
Sources of Data for Subject Property
Deeds, title company, flood maps, zoning ordinances, MLS, cost manuals, tax maps, and assessor records
Comparable Property Data
MLs, tax assessor, records or own files
Market Analysis
Study of supply and demand in a specific area
Highest and best use analysis criteria
- consider all uses that are possible for vacant site based on size, shape, and topography
*all uses physically possible as well as legal by zoning (deed restrictions or other regs, change of zoning or zoning variance)
*physically possible, legally permitted, and financially feasible & uses and conclude best max value)
Potential conditions for HBU
*continue as is
*modify improvements thru renovation, conversion, or another use
*demolition improvements
HBU land is vacant
1) physically possiblity
2) legal permissibility
3) financial feasibility
4) maximum productivity
HBU as property improved
maximum productivity
Land
improved or unimproved land
unimproved land
raw land with development material
improved land
land prepared for development due to grading, draining, installing streets & utilities
site
improved land or parcel that does not require future land development or subdivision
Cost approach
requires a separate land value estimate
6 steps for developing opinions of land (GLADES)
1)sales comparision
2)extraction
3)allocation
4)land residual technique
5)ground rent capitalization
6) subdivision development
sales comparison
most common, preferred method
1) find similar vacant parcels
2)analyze them to subject parcel
3) adjust the sales for salient differences
extraction
based on improved sales and the depreciated cost (contributory value) of improvements is subtracted from the sales price
Sale price of comp - depreciated cost of improvement = land value of comp sale
*most applicable when improvements can be readily valued, when improvements are either new or very old
Allocation
ratio of land value to improved property value…derived from what is typical in the market
Sales priceXtypical ratio of the land value to improvement value = land value
** used when vacant land sales are inadequate
land residual technique
income approach based on economic principle of surplus productivity
*separate rent from improved land and building improvements
*formula for income capitalization IRV (income/rate=value)
Primarily used on income properties
ground rent capitalization
income approach to land value. used when improved land rent is known as in improved land lease
Land rent/capitalization rate (derived from mkt) = land value
Subdivision development
income approach to the valuation of tracts of unimproved land with subdivision potential.
*Common assignment, but complex procedure
3 traditional and classical approaches to value
1) cost approach
2) sales comparison approach
3) income capitalization approach
Cost approach
summation approach to value
*use sales comparable approach, then value contribution of the building and site improvements are added to indicate value of overall property
sales comparison approach
comparison of the subject property to similar sales
Superior properties
require a negative adjustment
Inferior properties
require a positive adjustment
adjustment process
fines the difference between comps to the subject
adjustment made to comp sales = to subject property, not vice versa
elements of comparison (commonly used for adjustments)
*properties rights conveyed
*financing terms
*condition of sale
*expenditures made immediately after purchase
*market conditions
*location
*physical characteristics
*economic characteristics
*use/zoning
*nonrealty components
Income Approaches
Income capitalization approach measure the present value of the future benefits derived from property ownership such as collecting future rent payments & eventual resale property in the future
Reconciliation
involve the difference among the various value indications & arriving at a final opinion of a value
