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Related Flashcards
Cards In This Set
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An Appraisal is:
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Estimate or opinion of value based on supportable evidence and approved methods
- For the buyer and the bank |
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The Appraisal Process:
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CMA - (not an appraisal but similar)
BPO - Broker's Price Opinion (similar to CMA) --> Not professional appraisals An appraiser verifies market, doesn't determine value per se |
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The Appraisal Process (cont):
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- An orderly set of procedures, analysis and data.
1) General data: Neighborhood, region etc, social, political influences etc affecting value 2) Specific data: Details of property and costs, sales, income, expenses of similar properties |
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Value - property must have 4 characteristics
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DUST
Demand - Utility - usefulness for intended purpose Scarcity - finite supply Transferability - ease of transferring ownership rights |
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Market Value vs. Market Price:
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Market Value: reasonable opinion based on data analysis for most probable price
Market Price: Actual selling price |
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Basic Principles of Value:
- Anticipation - Change - Competition - Conformity - Contribution - Highest and Best Use - Plottage - Regression and Progression - Substitution |
Change - Real Estate subject to natural phenomena
Highest and Best Use (HABU) - most profitable or in demand use of a property, is analyzed in order by PLEM - Physically possible - Legally permitted - Economically Feasible - Most profitable Plottage - When 2 plots adjacent of land together have greater value than separate Regression & Progression (Twin principles) - Neighboring properties either decrease or increase value of that in question (good house in bad hood and vice versa) |
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3 basic valuation techniques used:
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- Sales Comparison Approach (market data approach)
- Cost Approach - Income Approach |
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Sales Comparison Approach (market data approach)
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- Comparable properties, location, prop rights etc (houses)
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Cost Approach
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- Based on substitution i.e. how much to rebuild:
--> Using: Square foot method / unit-in-place / quantity survey (materials) / Index method **Used for non-profits i.e. Schools, Churches Depreciation - Physical deterioration - curable - Functional Obsolescence i.e. incurable design/features where cost of repair/change > addition to value - External Obsolescence - external factors cause depreciation i.e. factory, noise, crap hood |
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Income Approach
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- Used for retail / stores / offices etc
- **Know formula for value: Income / Rate = Value (draw in circle) |
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Gross Rent Multiplier (GRM)
Gross Income Multiplier (GIM) |
Used for appraisal where rent = income such as an apt
(as well as commercial where other income also factors) **Look at formulas |
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Reconciliation
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Art of analyzing the 3 approaches, weighing findings and coming up with a market value.
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