CHAPTER 16 SNAPSHOT REVIEW
Real Estate Appraisal Snapshot Review
REGULATION OF APPRAISAL
Real property valuation ● real estate value = present monetary worth of ownership benefits: income, appreciation, use, tax benefits
The Appraisal Foundation ● established 1987 to administer USPAP; Appraiser Qualification Board for education and licensing; Appraisal Standards Board for setting standards; Appraisal Practices Board for opinions; Board of Trustees makes appointments and monitors other boards; Appraisal Subcommittee oversees the Foundation and state licensing; maintains list of qualified appraisers
FIRREA ● requires state-licensed or -certified appraisers for federally-related appraisals
USPAP
● USPAP states appraisal standards, guidelines and provisions
●Florida requires 15 hours of prelicense education in USPAP plus post license education
State licensed and certified appraisers
● must be certified, licensed, or registered trainee to be called appraiser or issue appraisal report; others can perform appraisal under supervision of certified or licensed appraiser; must be certified or licensed to receive direct compensation
● FL real estate licensees may appraise for compensation but cannot represent themselves as certified or licensed appraisers
● federally related transactions – real estate financial transaction that federal financial institution regulatory agency engages in, contracts for, or regulates that requires licensed or certified appraiser; must meet specific requirements
● certified appraisal reports – legal document that holds up in court; certified when signed by certified appraiser; in writing and USPAP compliant for federally related transaction
Appraisal service of real estate
● Part I, Chapter 475 – allows real estate licensees to appraise properties that do not require certified appraisals; may not appraise federally related transactions
● Appraisal reports conform to USPAP – appraisal applicants to sign pledge to comply with USPAP; prohibited from accepting compensation based on property value
● CMA – no USPAP compliance required for CMA preparation
●BPO – no USPAP compliance required for BPO preparation
CONCEPTS OF VALUE
Market cost/price/value ● supply: goods or services available for sale, lease, or trade
●demand: goods or services desired for purchase, lease, or trade
● price mechanism: quantified value of an exchange
Real estate value types ● market, reproduction, replacement, going concern, salvage, plottage, assessed, condemned, depreciated, appraised, rental, leasehold, insured, book, mortgage
Fundamental value characteristics ● value components: desire; utility; scarcity; purchasing power
Valuation principles ● anticipation, substitution, contribution, change, highest and best use, conformity, supply, demand, progression, regression, assemblage, subdivision, utility, transferability
APPRAISING MARKET VALUE
Market value ● price willing buyer and seller would agree on given: cash transaction, exposure, information, no pressure, arm’s length, marketable title, no hidden influences
The appraisal and its uses ● a professional’s opinion of value, supported by data, regulated, following professional standards; used in real estate decision-making
Steps in the appraisal process ● define purpose, collect and analyze data, identify highest and best use, estimate land value, apply basic appraisal approaches, reconcile, compile report
SALES COMPARISON APPROACH ● most commonly used; relies on principles of substitution and contribution
Steps in the approach ● compare sale prices, adjust comparables to account for differences with subject
Identifying comparables ● must be physically similar, in subject’s vicinity, recently sold in arm’s length sale
Adjusting comparables ● deduct from comp if better than subject; add to comp if worse than subject
Weighting comparables ● best indicator has fewest and smallest adjustments, least net adjustment from the sale price
Broker’s comparative market analysis ● abridged sales comparison approach by brokers and agents to find a price range
COST APPROACH ● most often used for recently built properties and special-purpose buildings
Types of cost appraised ● reproduction: precise duplicate; replacement: functional equivalent
Depreciation ● loss of value from deterioration, or functional or economic obsolescence
Steps in the approach ● land value plus depreciated reproduction or replacement cost of improvements
INCOME APPROACH ● used for income properties and in a rental market with available rental data
Steps in the approach ● value = NOI divided by the capitalization rate
GRM and GIM approach ● GRM: price divided by monthly rent; value: GRM times monthly rent; GIM: price divided by gross annual income; value: GIM times annual income
PREPARING A CMA
Gathering data ● property location and neighborhood, square footage and acreage, age, renovations, number of rooms, amenities; gathered from appraisals, surveys, deeds
Selecting comparables ● current listings as basis for competitive pricing
● recently sold show market, purchase prices, and length of time listed
●expired listings indicate too-high listing price and market trend changes
Adjusting comparables ● location, size, number of rooms, age, amenities compared between properties with adjustments made for differences
Computer-generated CMAs ● software for creating CMAs and listing presentations
AVMs ● online service that calculates property values; not an appraisal
