Chapter 19: Real Estate Appraisal

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appraisal

Back 1

an opinion of value based on supportable evidence and approved methods.

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associate real estate trainee appriaser

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entry-level appraiser; all reports must be cosigned by a state-certified residential real estate appraiser or state-certified general real estate appraiser.

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certified residential real estate appraiser

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qualified to appraise residential property of one unit to four units without regard to transaction value or complexity.

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certified general real estate appraiser

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qualified to appraise all types of real property without restrictions

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comparative market analysis

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recently closed properties (solds)

properties currently on the market

properties that did not sell

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brokers price opinion

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is a less expensive alternative of valuating properties often used by lenders working with home equity lines, refinancing, portfolio management, loss mitigation and collections

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characterstics of value

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DUST

demand

utility

scarcity

transferability

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market value

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is the most probable price that a property should bring in a fair sale

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market value is

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a reasonable opinion of a property's value

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market price

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is the actual selling price of a property

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cost

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may not equal either market value or market price

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anticipation

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value is created by the expectation that certain events will occur.

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change

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no physical or economic condition remains constant

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competition

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the intersection of supply and demand

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conformity

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means that maximum value is created when a property is in harmony with its surroundings

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contribution

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the value of any part of a property is measured by its effect on the value of the whole.

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highest and best use

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the most profitable single use to which a property may be put, or the use most likely in demand in the near future.

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plottage

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merging or consolidating adjacent lots into a single, larger one produces a greater total land value than the sum of the two sites valued separately.

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assemblage

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the process of merging two separately owned lots under one owner. Plottage is the amount that value is increased by successful assemblage.

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regression

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the worth of a better-quality property is adversely affected by the presence of a lesser quality property.

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progression

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the value of a modest home would be higher if it were located among larger, fancier properties.

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substitution

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the maximum value of a property tends to be set by how much it would cost to purchase an equally desirable and valuable substitute property.

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sales comparison approach

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an estimate of value is obtained by comparing property being appraised (the subject property) with recently sold comparable properties.

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sales comparison approach

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six-month/ one-mile rule

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cost approach

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based on the principle of substitution

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five steps of cost approach

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•estimate the value of the land as though it were vacant and available to be put to its highest and best use

• estimate the current cost of constructing the buildings and improvements

• estimate the amount of accrued depreciation resulting from the property's physical deterioration, functional obsolescence, and external obsolescence.

• deduct the accrued depreciation from the current construction cost

• add the estimated land value to the depreciated cost of the building and site improvements to arrive at the total property value

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reproduction cost

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the construction cost at current prices of an exact duplicate of the subject improvement, including both the benefits and the drawbacks of the property.

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replacement cost

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is the cost to construct an improvement similar to the subject property using current construction methods and materials, but not necessarily an exact duplicate.

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physical deterioration

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a curable item is one in need of repair, just as painting.

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functional obsolescence

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means a loss in value from the market's response to the item.

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external obsolescence

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caused by negative factors not on the subject property, such as zoning, environmental, social, or economic forces.

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income approach

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based on the present value of the rights to future income.

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income / rate =

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value

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income / value =

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rate

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value x rate =

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income

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gross rent multipliers (GRM)

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For 1 to 4 residential units:

sales price / gross monthly rent = GRM

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gross income multiplier (GIM)

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5 or more residential units, commercial or industrial property:

sales price / gross annual income = GIM