Unit 16 Flashcards
The Appraisal Foundation has two independent boards.
1) Appraises Qualifications Board (AQB)
2) Appraisal Standards Board (ASB)
Appraiser Qualifications Board. (AQB)
The (AQB) establishes minimum criteria for state-certified appraisers and endorses uniform examinations for certification. The (AQB) establishes guidelines for the supervision of registered trainees, including education for new supervisors.
Appraisal Standards Board (ASB)
Appraisal Standards Board (ASB) set minimum standards for appraisals performed for federally related transactions. The (ASB) develops interprets and amends the Uniform Standards of Professional Appraisal Practice (USPAP) on behalf of the appraisal industry.
CONCEPT OF VALUE.
1) Cost
2) Price
3) Value
1) Cost is the total expenditure required to bring a new improvement into existence plus the cost of the land. A contractor/seller wants the cost to be less than the price a consumer will pay — and the consumer will pay more than the cost only if the consumer perceives the propertie’s value to exceed its cost.
2) Price refers to the amount of money actually paid in a transaction. Price and value are not necessarily equal.
3) Value is the monetary value of goods or services at a particular time.
Types of Value
There are many types of value that an appraisal may be hired to estimate.
1) Assessed value is the value used as a basis for property taxation.
2) Insurance value is an estimate of the amount of money required to replace a structure in the event of some catastrophic event, such as a fire.
3) Investment value is the price an investor would pay given the investor’s own financing requirements and income tax situation. This type of value is personal to a particular investor.
4) Liquidation value is the value associated with a rapid sale. The dollar amount of a property should bring in a foreclosure sale or the sale price of a company that is going out of business are liquidation value examples.
5) Going-concern value is the value of an income producing property or business characterized by a significant operating history.
6) Salvage value is the estimated amount for which improvements can be sold at the end of a structure’s useful life.
External Obsolescence.
Any loss in value due to influences originating outside the boundaries of the property, such as an Expressway adjacent to a residential subdivision or deterioration of the neighborhood, is external obsolescence. Because External obsolescence is normally beyond the control of the property owner, it is considered incurable..
Age-Life Method.
Sometimes, appraisers estimate each category of depreciation separately. However, the vast majority of residential appraisals that employ the cost-appreciation approach use the age-life method to estimate accrued depreciation. The method is so named because it estimates a single value for accrued depreciation.
Age-life Method
The age life method is based on a ratio of a property’s effective age to its economic life.
Efective Age
Effective age is the age indicated by a structure’s condition and utility. A structure may be 5 years old, however, if it’s maintained well, it’s effective age, may be 2 years old..
Formula: Accrued Depreciation
Effective Age ÷ Total economic life × Reproduction cost new = estimated accrued depreciation.
Example: The effective age of a ten year old building is four years. The appraiser estimates the cost to reproduce the structure as though new today is $225000. If the total economic life is 60 years, what is the amount of accrued depreciation?
4 ÷ 60 × 225,000 = 15,000.
Net Opperating Income (NOI)
Net operating income is the income remaining after subtracting all relevant operating expenses from the Effective Gross income (EGI).
Net Opperating Income (NOI)
Fixed Expenses
Fixed expenses are costs that do not fluctuate with operations or occupancy levels, for example, property taxes and hazard insurance.
Reconciling The Value Indications Into A Final Value Estimate
The appraisal reconciles the various data to obtain the final estimate of what the subject property is worth in the final reconciliation. The appraisal uses a weighted average, given the most weight 55% to the sales comparison approach, 35% percent weight to the cost approach, and just 10% weight to the income approach.
Final Reconciliation of the Three Approaches
*Sales comparison (55%) + Cost approach (35%) + Income approach (10%) = Final estimate.
*Indicated Value × Weight = Weighted Value.
