Transcript Document

Chapter 17
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Real Estate Appraisal
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Appraisal
• An estimate of value.
• Three approaches to estimating value:
– Market – comparable sales data
– Cost – construction cost plus land value
– Income – monetary returns of property capitalized
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Valuing a House
Market Comparison Approach
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Competitive Market Analysis
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Calculating Gross Rent Multiplier
Gross Rent
Multiplier
$245,000
Gross
Annual
Rents
$34,900
No.2
$160,000
$22,988
= 6.96
No.3
$204,000
$29,352
= 6.95
No.4
$196,000
$27,762
= 7.06
As a Group:
$805,000
$115,002
= 7.00
Building
Sales Price
No.1
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= 7.02
Costs Approach to Value
Step 1: Estimate land as vacant
$ 30,000
Step 2: Estimate new construction
cost of similar building
$120,000
Step 3: Less estimated depreciation -12,000
Step 4: Indicated value of building
$108,000
Step 5: Appraised property value
by the cost approach
$138,000
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Square-foot Method of
Cost Estimating
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Income Approach
Variation by Direct Capitalization
Income / Rate = Value
$18,000 / 0.09 = $200,000
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Projected Annual Operating Statement
(Pro Forma Statement)
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Direct Capitalization Using
an Overall Rate
Income
= Value
Overall Rate
$45,400
0.09376
= $200,000
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Overall Rates - 10-year Holding
Period, 25-year Loan for 75% of the
Purchase Price, 10% Investor Return
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Reconciliation
Market Approach
Cost Approach
Income Approach
$180,000 x 75% = $138,000
$200,000 x 20% = $ 40,000
$160,000 x 5% = $ 8,000
Final Indicated Value
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$186,000
Appraisal Regulations
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THE APPRAISAL FOUNDATION
FEDERAL REGULATION
DEVELOPING THE APPRAISAL
APPRAISAL STANDARDS – USPAP
APPRAISALS REQUIRED
REPORTING STANDARDS
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Types of Appraisals and
Reporting Options under USPAP
Types of Appraisals
• Complete appraisal
• Limited appraisal
Reporting Options
• Self-contained appraisal report
• Summary report
• Restrictive report
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Formats of Appraisal Reports
1. Letter report
2. Form report
3. Narrative report
4. Review appraisals
5. Real Estate Analysis
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Appraiser License
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Certified General Appraiser
Certified Residential Appraiser
State licensed appraiser
Provisional licensed real estate appraiser
Appraiser trainee
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Texas appraiser licensing and
certification board requirements
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Texas appraiser licensing and
certification board requirements
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Texas appraiser licensing and
certification board requirements
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Texas appraiser licensing and
certification board requirements
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HIGHEST AND BEST USE
• = that use that will give the property its
greatest current value!
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Principles of Value
Principle of Anticipation
Principle of Substitution
Highest and best use of a property
Principle of competition
Principle of supply and demand
Principle of change
Principle of contribution
Principle of conformity
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Value
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Market value
Assessed value
Insurance value
Loan value
Estate tax value
Plottage value
Rental value
Replacement value
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Markets
• Buyer’s market – excess supply of housing for
sale.
• Seller’s market – demand exceeds supply.
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Texas Regulations
• TALCB – www.talcb.state.tx.us
• If you have not followed USPAP guidelines
then include this statement:
– THIS IS AN OPINION OF VALUE OR
COMPARATIVE MARKET ANALYSIS AND
SHOULD NOT BE CONSIDERED AN
APPRAISAL.
– BROKER’S PRICE OPINION
– COMPARATIVE MARKET ANALYSIS
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Key Terms
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Appraisal
Capitalize
Comparables
Cost approach
Depreciation
FIRREA
Gross rent multiplier
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Highest and best use
Income approach
Market approach
Market value
Operating expenses
Scheduled gross,
Projected gross
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