UNIT 21 APPRAISING R,E, Flashcards
OVERVIEW (PG 437-438)
-AN APPRAISAL IS…
-AN APPRAISAL IS
-an estimate or opinion of value based on
supportable evidence
-an APPRAISAL REPORT is an OPINION of market
value on a property given to a lender or
client with detailed and accurate information
- an appraiser is an independent professional trained
to provide an unbiased estimate of value in an
impartial and objective manner
– appraising is a professional service
performed for a fee
- for a licensee understanding the fundamental
principles of valuation helps complete an accurate
and comparative market analysis or CMA
– this assists the SELLER CLIENTS in figuring out a
reasonable asking price
– this assists the BUYER CLIENTS to make
appropriate offers based on current market
conditions
REGULATION OF APPRAISAL ACTIVITY (PG 438 UNIT 21)
-TITLE XI OF THE FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT OF 1989 FIRREA requires that:
– any appraisal used in connection with a FEDERALLY RELATED TRANSACTION be performed by a competent individual whose professional conduct is subject to supervision and regulation
– FEDERALLY RELATED TRANSACTION is any real estate financial transaction in which a federal financial institution or regulatory agency is involved
- transactions can involve sale, lease, purchase, investments, or exchange of real property,
- it could also include financing, refinancing, or use
of real property as security or loan investment.
-***Residential properties valued at $250,000 or less ARE EXEMPT and DO NOT NEED to be performed by a licensed or certified appraiser
– properties valued AT MORE than $250,000 require a certified appraiser
FOR LICENSING OR CERTIFICATION:
IT IS REQUIRED BY FEDERAL LAW
that appraisers be licensed or certified according to
INDIVIDUAL STATE LAWS
-State laws have to conform with federal
requirements, and they follow the criteria for
certification established by the APPRAISER
QUALIFICATIONS BOARD OF THE APPRAISAL
FOUNDATION.
-the APPRAISER FOUNDATION is:
– national body composed of representatives of
the major appraisal and related organizations
-APPRAISERS are expected to follow the Uniform Standards of Professional Appraisal Practice, USPAP, which was established by the foundations appraisal standards board
-The rules define the education, examination, and
experience requirements that are needed to get a
certification
– continuing education is also required
(PG 438 UNIT 21)
-WHO REQUIRED PENNSYLVANIA TO PASS
THE R.E. APPRAISERS CERTIFICATION ACT
CREATE BOARD OF CERTIFIED APPRAISERS?
-In PENNSYLVANIA ________who ACTS AS AN APPRAISER and/or ________an appraisal must be _________ & NOT JUST THOSE FOR FEDERALLY RELATED FINANCIAL TRANSACTIONS
-THE PENNSYLVANIA law and the Appraisals Boards Rules and Regulations can be obtained online from the DEPARTMENT OF STATE PORTAL
- FEDERAL LAW REQUIRED PENNSYLVANIA TO PASS THE R.E. APPRAISERS CERTIFICATION ACT CREATE BOARD OF CERTIFIED APPRAISERS?
- In Pennsylvania ANYONE who ACTS AS AN APPRAISER and/or PREPARES an appraisal must be CERTIFIED & NOT JUST THOSE FOR FEDERALLY RELATED FINANCIAL TRANSACTIONS
(PG 438-439 UNIT 21)
-THERE ARE 3 CLASSES OF APPRAISERS
CERTIFICATIONS AVAILABLE,
what are they?
***an appraiser certification ALSO
CERTIFIES COUNTY ASSESSORS who value
properties for ad valorem tax purposes in
PENNSYLVANIA CERTIFIED PENNSYLVANIA
EVALUATORS CPE certificates are issued to
individuals to meet certain education requirements
and pass an exam
-STATE CERTIFIED “GENERAL” R.E.
APPRAISER
-is permitted to appraise any residential or
non-residential property
– for FEDERALLY RELATED TRANSACTIONS,
- only a CERTIFIED GENERAL APPRAISER may
appraise commercial property valued at over
$1 million
CERTIFIED “RESIDENTIAL” R.E. APPRAISER
-is permitted to appraise only residential property of
1 to 4 units
– it doesn’t matter if the transaction is FEDERAL OR
NON-FEDERAL
– may appraise only these types of properties valued
OVER $250,000
BROKER APPRAISER
-permitted to appraise only properties VALUED
UNDER $250,000 that are NOT INVOLVED IN
FEDERALLY RELATED TRANSACTIONS
– this certification was offered to all licensed real
estate broker to apply by September 3, 1998
– after that date, any real estate broker who desired a
certification MUST MEET the qualifications for a
certified GENERAL OR RESIDENTIAL appraiser
COMPARATIVE MARKET ANALYSIS (PG 439 UNIT 21)
- IS OR IS NOT AN APPRAISAL?
- IN PENNSYLVANIA the ONLY OPINION OF VALUE, regardless of the form in which the statement is made is considered an ________
-What are the reasons a real estate licensee may prepare a CMA?
- A CMA IS NOT AN APPRAISAL and must
never be represented as one
-an APPRAISAL is the only opinion value
PENNSYLVANIA IS VERY CLEAR ON
THIS
**- R.E. Licensees ARE NOT allowed to prepare
appraisals, UNLESS they are also properly
licensed by the state appraisal board to do so
-The Real Estate Commissions rules clearly define a
comparative market analysis as a written
ANALYSES OR OPINION relating to the probable
PROBABLY SALE OF A SPECIFIC PROPERTY
-A real estate licensee may prepare a CMA to
– help DETERMINE AN ASKING PRICE to secure
a listing
- to determine an offering price for the buyers
offer
BROKERS PRICE OPINION BPO
(PG 439 UNIT 21)
- A BROKERS PRICE OPINION (BPO)
Is a less expensive alternative of evaluating a
property for what? - TRUE/ FALSE : does Fannie Mae and Freddie Mac
have forms that are used by real estate licensee’s
who perform BPO’s for a fee?
A BROKERS PRICE OPINION (BPO)
Is a less expensive alternative of evaluating a property for
– is used in home equity lines
– refinancing
– portfolio management
– loss mitigation
– collections
** NOTE: a BROKERS PRICE OPINION BPO IS NOT used to determine the market
value of a property to give to a lender for a
FEDERALLY RELATED TRANSACTION to
determine the price for real estate, such as for a
loan
-(as noted previously) PENNSYLVANIA REQUIRES
that any FEDERALLY RELATED TRANSACTIONS
that are going to be needed by a lender must be
done by a CERTIFIED APPRAISER
**The one’s listed above are not determined for a
FEDERALLY RELATED TRANSACTIONS
(bank loans), and therefore can be done by a BPO
-TRUE / “both Fannie Mae and Freddie Mac have
forms that are used by real estate licensee’s who
perform BPO’s for a fee”
THEY MUST BE BROKERS PRICE OPINION
CERTIFIED
A regular licensee cannot do a BPO
THE APPRAISAL PROCESS
(PG 439 -440 UNIT 21)
The appraisal process is an ORDERLY SET OF PROCEDURES used to COLLECT AND ANALYZE DATA to arrive at a REASONABLE MARKET VALUE CONCLUSION. The data is divided into TWO BASIC CLASSES which are _______ and _________
- the MOST IMPORTANT IS THE_________
- when the appraiser is looking at the neighborhood of the property, what are they taking into consideration?
- THE TWO BASIC CLASSES ARE:
GENERAL DATA & SPECIFIC DATA
GENERAL DATA which covers:
– the nation
– the region
– city
– neighborhood
-the MOST IMPORTANT IS THE NEIGHBORHOOD,
where the appraiser finds the:
– physical
– economic
– social
– political influences that directly affect the value and
potential of the subject property
SPECIFIC DATA covers:
-DETAILS of the subject property and
– comparative data RELATING TO COSTS, SALES,
INCOME AND EXPENSES OF SIMILAR
PROPERTIES relating to AND COMPETITIVE with
the subject property (SIMILAR AND COMPETING)
*****GENERAL DOES A BROADER ANALYSIS AS
FAR AS RANGE FROM NATIONAL TO CITY AS
WELL AS PHYSICAL, ECONOMIC, SOCIAL AND
POLITICAL “ARENAS”OF THE NEIGHBORHOOD.
SPECIFIC DATA FOCUSES MORE ON THE
SUBJECT PROPERTY ITSELF AS WELL AS
COMPETING HOUSES
THE APPRAISAL PROCESS
(PG 440 UNIT 21)
THE FOLLOWING Is an OUTLINE of the steps and
appraiser takes when doing an appraisal
assignment
FIGURE 21.1 (PG 440)
1) STATE THE PROBLEM
2) List the DATA NEEDED and the SOURCES
3) GATHER, RECORD, VERIFY, AND
ANALYZE THE NECESSARY DATA:
(necessary data is)
GENERAL DATA which includes:
-nation
– region
– city
– neighborhood
SPECIFIC DATA which includes:
– subject site
– improvements
DATA FOR EACH APPROACH which includes:
– sales data
– cost data
– income and expense data
4) determined the highest and best use
5) estimate the land value
6) estimate value by each of the three approaches
(SALES COMPARISON APPROACH,
COST APPROACH, INCOME APPROACH)
7) reconcile the estimated value for the final value
estimate
8) report the final value estimateTHE APPRAISAL PROCESS
(PG 440-441 UNIT 21)
-once the APPROACHES HAVE BEEN RECONCILED AND AN OPINION OF VALUE HAS BEEN REACHED, the appraiser prepares a report for the client.
- The report should determine (10 things)
THE REPORT SHOULD DETERMINE:
- identify the REAL ESTATE and REAL
PROPERTY INTEREST being appraised
– state the PURPOSE AND INTENDED USE of the
appraisal
– defined the VALUE TO BE ESTIMATED
– state the EFFECTIVE DATE of the VALUE and the
DATE OF THE REPORT
– state the EXTENT OF THE PROCESS by
COLLECTING, CONFIRMING, AND REPORTING
THE DATA
– list all ASSUMPTIONS AND LIMITING
CONDITIONS that AFFECT THE ANALYSIS,
OPINIONS, AND CONCLUSION OF VALUE
– describe the INFORMATION CONSIDERED, the
APPRAISALS PROCEDURES FOLLOWED, and
the REASONING THAT SUPPORTS THE
REPORTS CONCLUSIONS, (if any approach was
excluded, the report should explain why)
– describe the appraisers opinion of
the HIGHEST AND BEST USE of the real estate
– describe ANY ADDITIONAL INFORMATION that
MAY BE APPROPRIATE TO SHOW COMPLIANCE
WITH SPECIFIC GUIDELINES established in the
UNIFORM STANDARDS OF PROFESSIONAL
APPRAISAL PRACTICE (USPAP) or to clearly
identify and explain any departures from the
guidelines
– include a SIGNED CERTIFICATION, as
REQUIRED by the USPAP
THE APPRAISAL PROCESS
(PG 441 UNIT 21)
“IN PRACTICE”
-The VALUE is NOT DETERMINED BY________
-VALUATION OF the appraisal DOES rely on
- The sellers and the licensees may not always like
the appraisers value.
Since most appraisals are ordered by lenders who
base their loan on this value, the appraiser must
be able to back up the appraisal report
with _____ ________
-The VALUE is NOT DETERMINED BY
-the APPRAISER
-or by what the SELLER WANTS TO GET
-or by what the BUYER WANTS TO PAY
-or by what the REAL ESTATE LICENSEE
RECOMMENDS
- the appraisers RELIES ON THE EXPERIENCE AND
EXPERTISE IN VALUATION THEORIES
-develops a SUPPORTABLE AND OBJECTIVE
REPORT called an “appraisal” that
- verifies the VALUE INDICATED BY THE MARKET
- the appraiser must be able to back up the appraisal
report with QUANTIFIABLE CONCLUSIONS
VALUE (PG 441 UNIT 21)
- The term “value“ in the real estate market
refers to________
- what acronym is used to describe the four
characteristics of value? (4 values)
-DESCRIBE EACH ONE
MONETARY WORTH IN THE R.E. MARKET
REFERS TO:
-having MONETARY WORTH based on
DESIRABILITY
-THE ACRONYM USED TO DESCRIBE VALUE
IS:
D U S T
-DEMAND
-UTILITY
-SCARCITY
-TRANSFERABILITY
-DEMAND: the NEED OR DESIRE FOR
POSSESSION OR OWNERSHIP and is
BACKED BY FINANCIAL MEANS to
satisfy that need
-UTILITY: The capacity to SATISFY HUMAN
NEEDS AND DESIRES (THINK UTILIZE)
-SCARCITY: A FINITE SUPPLY (limited in size or
extent)
-TRANSFERABILITY:
the relative EASE OF TRANSFERRING
OWNERSHIP RIGHTS from one person to
another
MARKET VALUE (PG 441 UNIT 21)
- MARKET VALUE IS WHAT?
- The definition of MARKET VALUE makes three assumptions, what are they?
-MARKET VALUE is the MOST PROBABLE
PRICE a property should bring in a fair sale
-The 3 assumptions of market value are:
1) presumes a COMPETATIVE AND OPEN
MARKET
2) the BUYER AND SELLER ARE BOTH
assumed to be ACTING PRUDENTLY and
KNOWLEDGEABLE
3) market value depends on the price not being
AFFECTED BY UNUSUAL CIRCUMSTANCES
MARKET VALUE (PG 441 UNIT 21) -what conditions are essential to market value?
-FOLLOWING CONDITIONS ARE ESSENTTO MARKET VALUE
- most PROBABLE PRICE is NOT the AVERAGE OR
HIGHEST PRICE
– (NO RELATION/NO PRESSURE)
the BUYER/SELLER are NOT RELATED or acting
WITHOUT UNDUE PRESSURE
(***CLASS NOTES NO RELATION IS REFERRED
TO AS “AT ARMS LENGTH”)
-Informing BOTH the BUYER/SELLER about the
properties USE AND POTENTIAL, including
ASSETS AND DEFECTS
-reasonable TIME needs to be allowed for
EXPOSURE IN THE OPEN MARKET
-payment must be made IN CASH /EQUIVALENT
-The price must represent a “normal market price”
for the property sold, UNAFFECTED by
-special financing amounts or terms
-services
- fees
- costs
- credits incurred in the market transaction
(THE “RAW PRICE” OF THE PROPERTY
UNAFFECTED BY THE ABOVE)
MARKET VALUE VERSES MARKET PRICE (PG 442 UNIT 21)
-MARKET VALUE (BASED ON DATA) is an
OPINION of value based on an ANALYSIS
OF DATA:
– the data may include NOT ONLY INCLUDE AN
ANALYSIS of COMPARABLE SALES but
ALSO an analysis of
-potential income (rental)
-expenses and replacement costs
– THE MARKET PRICE is what the property
ACTUALLY SELLS FOR
– the SALES PRICE
MARKET VALUE VERSES COST
(PG 442 UNIT 21)
-COMMON MISCONCEPTION about valuing
property is that cost represents market
value
– COST AND MARKET VALUE MAY BE THE SAME,
in fact, when improvements on the property are
new, cost and value are likely to be equal
– MORE OFTEN, COST DOES NOT EQUAL MARKET
VALUE
– example would be installing a swimming pool for
$20,000, the cost of improvement MAY NOT
ADD $20,000 to the value of the property
