RE Appraisal Flashcards
Estate in Land means
Right of Possession
6 Rights in the Bundle attached to the fee simple absolute estate
Right of quiet enjoyment
Right to give away
Right to sell by deed
Right to will
Right to exclude
Right to control with what’s allowed by law
2 types of fee simple defeasible
Determinable
Condition Subsequent
Determinable vs Condition Subsequent
reversion of the estate back to the original grantor is not automatic in CS
2 types of life estate & definitions
conventional (anyone) and legal (husband/wife/family members)
Partition Suit
can terminate a joint tenancy or a tenancy in common
Lucas v. South Carolina Coastal Council
Supreme Court ruled that a taking is unconstitutional if it
prohibits the construction of any habitable or productive improvement on the owner’s land and eliminates all economic benefits associated with the land.
Kelo v. City of New London
government may condemn property and then sell it to a private developer, concluding that the increased tax revenue and economic development would benefit the public.
Plat
depicts the arrangement of buildings, roads, and
other services for development.
Floodplains
land areas adjacent to rivers and
streams that are subject to recurring flooding.
Incentive zoning
system by which developers receive zoning incentives on the condition that specific physical,
social, or cultural benefits are provided to the community.
5 economic characteristics of land
Area (situs)
Availability
Improvements
Permanence
Externalities
International Trends that Impact Investment
balance of trade
foreign exchange rates
commodity prices
wages
interest rates
industrial production
sales volumes
imports and exports
National/Regional Trends that Impact Investment
gross national and domestic product
national income
balance of payments
price indexes
interest rates
employment and unemployment rates
housing starts
building permits
construction expenditures
Local Trends that Impact Investment
population
household formation
economic base
employment rates and stability
wages
household income levels
land use changes
technology changes
government subsidies
Basic Determinants of Need for RE
Population size, composition, and distribution
According to FIRREA, a property’s market value is a particular price provided that ____
it is a cash price or its equivalent.
Assumptions for Market Value Definition
Cash transaction
Exposed on the open market for a reasonable period
Parties have full information about market conditions and about potential uses
No abnormal pressure on either party to complete the transaction
Parties are not related (“arm’s length” transaction)
Marketable and conveyable Title
“normal consideration,” that is, price does not include hidden influences such as special financing deals, concessions, terms, services, fees, credits, costs, or other types of consideration
FIRREA Definition of Market Value
Parties are typically motivated
Parties are well informed or well advised and acting in what they consider their own best interests
Reasonable time is allowed for exposure in the open market
Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto
Price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Efficient Market Assumptions
Items are homogeneous and easily substituted for each other
Quality is uniform, leading to relatively low and stable prices
Large number of participants competing, with no one with a large enough share to directly influence price
Few restrictions or regulations
Competition keeps supply and demand close to a condition of balance and equilibrium
Participants are knowledgeable and fully informed about the market; information is readily available
Organized mechanism brings buyers and sellers together
Sellers can enter and leave the market easily in response to changes in demand
Items are supplied quickly, transported easily, and consumed quickly
Open market operations
when the Fed sells or buys government securities (bonds) as a means of controlling the supply of, and demand for, money.
2 Levels of Market Analysis
- General View of Entire Market (w/o any specific property)
- Focused View of the Specific Competitive Market
2 Types of Market Delineation
Market Segmentation and Product Disaggregation
Market Segmentation
differentiating most likely users of a property from everyone else
Product Disaggregation
Differentiating the subject property from other properties
5 Things Appraiser Looks at During Market Delineation
Market Area
Property Type
Property Features
Substitute Properties
Complementary Properties
11 market indicators for Residential Demand
Population
Employment & Income
Financial Conditions
Owner/Renter Mix
Land Use
Tax Structures
Appeal Factors
Service & Support Facilities
Transportation
Price Changes
Time on Market
3 Approaches for Trade Area Delineation
Population and expenditure approach
Drive-time approach
Traffic count approach
Population and expenditure approach
delineates the area around the location which contains enough people and income to generate the required sales dollars for the existing or proposed retail property
Drive-time approach
Delineates a radius for the location based on the time consumers are willing to drive to purchase the type of good.
Traffic count approach
the area that has the amount of passing traffic necessary to provide sufficient demand at the location to support the store.
2 Step Process for Measuring Retail Demand
- Estimate demand in dollars in the trade area
- Convert dollar demand into square footage number
9 Market Indicators for Retail Demand
Population
Income
Sales Retention in Trade Area
Required Sales Volume
Vacancy Rates
Sales Captured Outside Trade Area
Land Use
Transportation
Appeal Factors
8 Market Indicators for Office Demand
Office-using employers
Worker Space needs
Vacancy and absorption
Class demand changes
Land use
Transportation
Appeal Factors
Financial Conditions
8 Market Indicators for Industrial Demand
Industrial-space-using employers
Land Use
Raw Materials
Labor Pool
Transportation
Trade Barriers
Demand for Type
Employment
5 Things Industrial Demand can be disaggregated by
Type of user
Rent level
Class of building
Geographical submarket
Size of user
4 Things Appraisers should examine
Current Volume of new housing
Past trends to indicate if volume will decline
Residential construction costs
Trends in labor force
10 General Influences on Supply
Role of Gov’t
Labor force
Construction costs
Vacancy rates
Absorption
New Construction
Conversions to Alternate Uses
Vacant land available for development
Total stock in market/Available stock
Owner vs tenant occupancy
3 Important Factors to Putting Demand and Supply Together
Business Trends
Employment & Income
Financing
Absorption
Rate at which new supply is being occupied in the market
When the appraiser looks at property features or substitute properties the process is called?
Segmentation
Appraisal
Estimated opinion of value
7 Principles of Appraisal
Estimated opinion of value.
“Opinion” must be properly supported with both general and specific data.
Must refer to a specific date
Estimated value must be properly defined.
Property must be described in an accurate, adequate manner.
Appraiser must have the required education and experience
Appraiser must be an objective, unbiased party
5 Primary Attributes of Appraiser
Adequate Knowledge
Appraisal Experience
Objectivity
Personal & Professional Integrity
Unyielding Willingness to Do Work on a Mutually Agreed-Upon Fee on a Timely Basis
Most people feel appraisers should have _____ years of experience before conducting appraisals on their own
at least 2
7 Steps in the Appraisal Process
- Define the problem and scope
- Collect, record, and verify the required data
- Determine the property’s highest and best use
- Estimate land value
- Use 3 approaches to estimate value
- Reconcile the estimated values to determine the final value estimate
- Communicate the final value estimate
2 Types of Data for Appraisal
Specific data
General data
6 Techniques in Valuing Land
Direct Sales Comparison
Allocation
Extraction
Subdivision development analysis
Land residual
Ground rent capitalization
Direct Sales Comparison
sales of comparable vacant parcels are analyzed and adjusted to indicate a value for the subject land
Most reliable method for land value estimation
Allocation
a typical ratio of land value to total value is derived from comparable properties and applied to the subject.
Extraction
land value is estimated by deducting the depreciated cost of improvements on a property from the total sale price of the property
Subdivision development analysis
costs and profit are deducted from estimated gross sale prices of subdivided and finished lots, and net sales proceeds are discounted to present value
Land residual
net operating income attributable to the land is capitalized at market rates to obtain land value
Ground rent capitalization
ground rent of the subject is capitalized at market rates
3 Approaches to Estimate Value
Cost Approach
Income Approach
Sales Comparison Approach
Sales Comparison Approach
appraiser examines the price (or price per unit area) of similar properties recently sold or currently being sold in the marketplace to come up with comparable value assessments
Cost Approach
estimates a property’s value by adding the land value to the depreciated value of any improvements to the property
Income Approach
capitalizes a single year’s income or discounts a projected income stream to derive an indication of the property’s value
appraiser must never _____ the values reached by the three approaches to value to arrive at the final value estimate
simply average
3 Forms to Communicate the Appraisal
Short- or Long- Form Narrative Reports
Form Reports
Letter/Oral Reports
4 Areas of the Valuation Trade in the USPAP Ethics RUle
Conduct
Management
Confidentiality
Record keeping
Goal of the USPAP Ethics Rule
“Promote and preserve the public trust inherent in appraisal practice [through] the highest standards of professional ethics.”
The Gramm-Leach-Bliley Act of 1999
deals with privacy laws and regulations regarding appraiser confidentiality
USPAP’s Standard 1
“In developing a real property appraisal, an appraiser must identify the problem to be solved and the scope of the work necessary to solve the problem, and correctly complete research and analysis necessary to produce a credible appraisal.”
8 Steps of Defining the Problem (Identifying __)
Client and intended users
Intended use
Type of value sought
Effective date
Real property and specific property rights
All assumptions
Limiting conditions and hypothetical conditions
Appraiser’s competence to undertake the assignment
8 Types of Values Sought in Appraisal
Market value
Insurable value
Salvage value
Rental value
Replacement value
Investment value
Value-in-use
Liquidation value
extraordinary assumption
“an assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions.”
hypothetical condition
“that which is contrary to what exists but is supposed for the purpose of analysis.”
USPAP Definition of Assumption
That is what is taken to be true
4 Types of Neighborhood Influence Forces
Physical/Environmental
Economic
Governmental
Social
In a site appraisal the conditions of subsoil, specifically its suitability for a foundation and its bearing quality are usually defined by a(n) ____
engineering study
3 Primary Zones in a Residential Lot
Public, private, service
7 Steps in the Gross Living Area
- Measure around the outside of the house
- Count each floor above grade
- Remember all above-ground habitable living area
4.If it is not above-grade, basements should not be included - No garages
- Include porches only if heated and finished
- If attic is unfinished and is <5ft tall, do not include.
3 Types of Foundation Walls
Slab-on-ground
Basement
Crawl space
all real property is assumed to be valued
as fee simple
leasehold estate for the tenant is a form of
personal property
Appraisers play a vital role in the real estate market because they are looked to as
value experts and financial consultants.
On the supply side of the market analysis, general influences of value include
the labor force.
Of the following forms of title evidence, which provides the best evidence of ownership?
A Torrens certificate, if available
four production agents of the balance principle
Land, labor, capital, and management
Five methods of direct capitalization
Contractor’s/Cost Method, Development/Residual Method, Comparable Method,
Investment/Income Method,
and the Accounts /Profits Method
