Unit 21 Flashcards
Appraisal
An estimate of value based on supportable evidence
Appraisal report
An opinion of market value on a property given to a lender or client with detailed and accurate info
Appraiser
An independent professional trained to provide an unbiased estimate of value in an impartial and objective manner according to appraisal process. Professional service performed for a fee
Federal law PA appraisal
Passed the Real Estate Appraisers Certification Act and created the board of certified real state appraisers.
- must be a certified appraiser to make an appraisal
Three classes of certification
- State certified general real estate appraiser: Federally related transactions (appraises commercial property valued over 1 million)
- State certified residential real estate appraiser: residential property wether federal or non federally related (appraises properties valued over $250,000)
- Broker/ Appraiser: Only properties valued under 250,000 that are not involved in federally related transactions
CMA
not an appraisal! Only opinion of value is an appraisal.
written analysis or opinion relating to the probable sale price of specific property. Helps determine the asking price to secure a listing or an offering price for a buyers offer
Brokers price Opinion
less expensive alternative of valuating property often used blenders working with home equity lines, refinancing, portfolio management loss mitigation, and collections.
- not used in federally related transactions or in places that require an appraisers license like PA.
- BPO in PA must be a certified appraiser
Appraisal Process
Orderly set of procedures used to collect and analyze data to arrive at a reasonable market value conclusion.
1. state the problem
2. list the data needed and the sources
3. gather and record, verify and analyze the necessay data
General data: nation, region, city and neighborhood
Specific Data: covers details of the subject property- subject site and improvements
Data for each approach:
- sales data
- cost data
- income and expense data
- determine the highest and best use
- estimate the land value
- estimate value by each of the three approaches
- reconcile the estimated values for the final value estimate
- report the final value estimate
Four characteristics of value
Demand
Utility
Scarcity
Transferability- relative ease which ownership rights are transferred from one person to another.
Market Value
most probable price a property should bring in fair sale
- assumes a competitive and open market
- buyer and seller are both assumed to be acting prudently and knowledgeably
- depends on the price not being affected by unusual circumstances
conditions for market value:
*most probable price is not the average or highest price
* buyer and seller are unrelated and acting without undue pressure
* well informed about property use and potential
*reasonable time in open market
*payment must be made in cash or its equivalent
*price must represent a normal market price for the property cold
Market price- sales price
the actual selling price of the property
Cost may not equal either market value or market price.
Basic Principles of Value
Anticipation: Value is created by the exception that certain benefits will be realized in the future (income approach)
Change: No physical or economic condition remains constant
Competition: supply and demand
Conformity: in harmony with surrounding area
Contribution: value of any part of a property is measured by its effect on the value of the whole parcel
Highest and best use: Most profitable single use
Increasing and diminishing returns: Increases value only to the assets max value beyond that point additional improvements no longer affect a property value.
Plottage: merging or consolidating adjacent lots into a single larger lot produces greater total land value than the sum of the two sites sold separately. Process is called assemblage
Regression and progression: the property near can add value or diminish value
Substitution: Hold properties max value tends to be set by how much it would cost to purchase equally desirable and valuable substitute property. (sales comparison approach)
Supply and demand
Sales comparison Approach/ market data approach
makes use of sales of properties comparable to the property that is the subject of the appraisal by adding or subtracting the value of a feature present or absent in the subject property versus the comparable.
- property rights
- financing concessions
- market conditions
- conditions of sale
- market conditions since the date of sale
- location/ area preference
- physical features and amenities
Most reliable approach when appraising single family homes
Cost approach
Estimates current reproduction or replacement cost of constructing the building and other property improvements using the square foot method, the unit in place method, the quantity survey method, or the index method. It estimates accrued deprecation (loss in value) using the straight line method or by estimating items of physical deterioration, functional obsolescence, or external (always incurable) obsolescence.
Most useful in the appraisal of newer or special purpose buildings such as schools, churches, and public buildings.
Square foot method (comparison method)
cost per square foot of a recently built comparable structure is multiplied by the number of square feet in the subject building. Results in cost estimation.
Unit in Place Method
the cost of a structure is estimated based on the construction cost per unit of measure of individual building components. The sum of the components is the cost of the new structure
