Broker. Real Estate Valuation. Chapter 6. Copyright Gold Coast Schools 1

Transcription

1 Broker Chapter 6 Real Estate Valuation 1

2 Learning Objectives Define a federally related transaction Distinguish among price, cost, and value Distinguish among the different types of value Distinguish among the various appraisal principles 2

3 Learning Objectives Distinguish between highest and best use as though vacant, and highest and best use as improved Describe the steps involved in the appraisal process Distinguish among the different types of appraisal reports 3

4 Introduction to Appraisal Appraisal is a supported, defended, estimate of value of property rights as of a given date Purpose Estimate value Most frequently, market value Function Concerns how the client intends to use the information 4

5 Certification and Licensure FIRREA requires states To license or Certify appraisers Involved in federally related transactions A federal financial institution Or any federal agency Real estate licensee can do appraisals but must follow USPAP CMA s may not be referred to as an appraisal 5

6 Appraisers Certification and licensure Registered Trainee Licensed Certified Residential Certified General 6

7 Price, Cost,Value Price Cost Value Actual amount for which something is bought or sold Expenditure necessary to bring into existence Ability to command other goods in exchange Value, Price and Cost may or may not be the same number 7

8 Characteristics of Value Demand - Desire, need and the means to acquire Utility - Useful and able to fill a need Scarcity - Availability in relation to demand Transferability - Ability to convey 8

9 Types of Value Assessed value - tax purposes Going-concern value - value of an operating business enterprise Insurable value Investment value Liquidation value - forced or hurried sale Salvage value - what s left 9

10 Value Definitions Value in use Based on past income history rather then potential income as in highest and best use Market value Normal, typical and competitive market conditions exist 10

11 Principles of Value Supply side factors - cost based Amount of available housing stock New development and new construction Decrease in the price of resources Land Labor Materials Capital Profit 11

12 Principles of Value Demand side factors - consumer based Price, most important demand side force Number of potential consumers Consumer preferences and lifestyles Employment rates, income Availability of credit, barometer of the real estate market 12

13 Principles of Value Anticipation is based on the premise that expectation of future benefits creates value Substitution the basic premise underlying all three methods of value estimation Sales comparable Cost depreciation Income capitalization 13

14 Increasing and Decreasing Returns Increasing When money spent on improvements produces a proportionate increase in value Decreasing When an owner will not recover the money invested in an improvement (overimprovement) 14

15 Principles of Value Conformity suggests that property values are maximized when architectural homogeneity and uniformity of land use occur in a neighborhood External economies and diseconomies External economies result from positive external factors that enhance property values (Infrastructure to a site) External diseconomies have a negative impact on value (contamination) 15

16 Highest and Best Use Probable and legal use of real property That: Is physically possible Is defendable Is financially feasible Results in the highest value 16

17 Highest and Best Use Types Vacant Improved A residual technique Total income building income = land income Land income site capitalization rate = land value 17

18 The Appraisal Process Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Define the problem Preliminary analysis-select and collect data Analyze highest and best use Estimate land value Apply the three approaches to value Reconcile the value indications and final value estimate Report the value 18

19 The Appraisal Process Define the Problem Rights to be valued are critical to the value conclusion Effective date of the appraisal - date the property is inspected Property size is calculated based upon exterior dimensions How it is to be used determines the type of report 19

20 The Appraisal Process Preliminary analysis Select and collect the data The most time consuming step in the appraisal process Estimate land value The physical components of the property must be valued separately Building Land Building ratio = building value total property value 20

21 The Appraisal Process Apply the three approaches to value Sales comparison - best indication of market value for residential property Cost depreciation - most appropriate when the improvements are new or nearly new Income capitalization - applies to income producing properties 21

22 The Appraisal Process Reconcile the value indications Final value estimate is most commonly a weighted average An appraiser must use any approach to value estimation which is appropriate 22

23 Appraisal Reports Departure provision under USPAP Complete appraisals Valuation reports that do not implement the departure provision Limited appraisals Valuation reports performed under the departure provision 23

24 Appraisal Reports Oral reports Form reports Narrative reports Self-contained reports Summary reports Restricted reports 24