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Unit 1
The Appraisal Process
| Question | Answer |
|---|---|
| Review - Questions to Begin the Appraisal Process | Who Client and Intended Users What Intended Use Why Type of Value When Past, present, or future value Where Property location |
| Retrospective Appraisal | assignment of value for a specific moment in time based upon historical data |
| Retrospective Appraisal | When completing a retro appraisal, only the conditions up to the specific date of value are relevant |
| Present Value | The most common type of assignment that appraisers receive is determining current value-researching historical data as well as competing sales in the current market |
| Present Value | It is a good idea to examine all the listings, closed sales, and pending sales in the immediate neighborhood to determine the number of days on the market and exposure time. |
| Future Value | prospective appraisal or hypothetical appraisal |
| prospective appraisal | This is the most common type of future value assignment. Use information from current market conditions to formulate a prospective value. An example of a future or prospective appraisal would be a construction appraisal report. |
| After The scope of work | Gather, Sort, and Verify the Data |
| Gather the Data | Most important : economic, demographic, environmental, sociological information affecting markets trends, local area neighborhood employment, income levels, trends, access, convenience of location, specific data both subject and comparable properties. |
| Local Data Sources | local chambers of commerce, planning commissions, building departments, health departments, tax assessor’s offices, and county recorder’s offices.real estate agents, area builders, or personal inspections. |
| Features of a House that Affect its Value | General condition and age of the house, Size of the building and the surrounding land, Location of the house, Number of bedrooms and bathrooms, Any major improvements or additions to the property, fireplace, skylights, or security system |
| Sort the Data | sorting the gathered information is a critical component in the analysis process. |
| Verify the Data | Without considering the motivating factors and market pressures of each sale, the incorrect conclusion may be reached |
| Sales Comparison Approach | analyze comparable sales data |
| Comparable sales | properties with characteristics similar to those of the subject property and are used for analysis in the appraisal process. |
| Competitive properties | those that are currently listed for sale. These properties have the same utility as the subject property and compete for the available buyers. |
| Competitive properties | Sales need to be equivalent |
| Comps | The more comps an appraiser can analyze, the more sound and supportable his or her conclusions will be. Therefore, an appraiser should utilize as many comps as necessary to arrive at his or her conclusion. |
| element of comparison | any aspect of a real estate transaction or any characteristic of the property that may affect the property’s sales price. |
| After examining all the elements of the comparable properties in a similar way, | adjustments are applied. |
| appraisers should try to use comparable properties that include the same property rights as the subject property in their analyses . | since property rights tend to have a large influence on value |
| If typical financing was used, the sale is referred to as a | cash equivalent sale. |
| differences in financing can cause the sales price of one property to be significantly higher than that of | an almost identical property that sold in the same period. |
| Conditions of sale | include circumstances of the sale, such as exposure time, marketing process, and buyer motivation. Unusual conditions of sale may affect the final purchase price of a comparable sale and cause the sales price to reflect the market improperly. |
| arm’s-length transaction | all parties involved are knowledgeable, acting in their own self-interest, and under no undue influence or pressure from other parties |
| A-typical motivation to sell | An example of atypical motivation would be sellers going through a divorce. In this case, they would have more motivation than other sellers would and might sell the property for less money. |
| Reasons for Expenditures Immediately After Purchase | Curing deferred maintenance Removing and remodeling parts of the structures Change in use with special use permits and sometimes zoning changes Costs for remediation of any contamination |
| seller’s market | demand exceeds supply |
| buyer’s market | because real property offered for sale is in plentiful supply in relation to demand. |
| Time adjustment | adjustments made because of changing market conditions. |
| paired sales analysis | adjustments for the presence or absence of any feature by pairing the sales prices of otherwise identical properties with without that particular feature. used in determining the value for time, location, or other differences between two properties. |
| Physical Characteristics | site area, view, amenities, quality, condition, design and appeal, age, and size of improvements are all items that have an influence on a property’s value. |
| Non-real Property | a seller may include all appliances in the sale of the house. If the sales price of the comp includes such items, an adjustment may be needed. |
| Highest and Best Use | One of the simplest ways to check highest and best use is to see if there is a difference in zoning. |
| more intensively zoned property | Typically, properties with zoning that allows a more intensive use are more valuable. This is because the owner of the more intensively zoned property has more options for how he can use his property. |
| Economic Characteristics | Ideally, if the subject property is producing income, the comps should produce similar amounts. If not, an adjustment may be necessary. |
| Quantitative analysis | compares data on properties to obtain results that are then applied to other properties in the same market-include data analysis, statistical analysis, and graphic and trend analysis. |
| Qualitative analysis | compares data on properties to obtain relative comparisons between properties in the same market. |
| paired sales analysis | method of estimating the amount of adjustment for the presence or absence of any feature by pairing the sales prices of otherwise identical properties with and without that feature. |
| sale-resale analysis | method for determining adjustment or depreciation amounts that is useful when a property is sold and resold in a relatively short period. |
| Multiple Regression Analysis | statistical technique for estimating a particular variable, such as a probable sales price, using more than one other known variable. |
| Graphic analysis | technique used to identify and measure adjustments to the sales prices of comparable properties. |
| Trend analysis | arrangement of statistical data in accordance with its time of occurrence, usually over a period of years. |
| Qualitative analysis | (1) relative comparison analysis, (2) ranking analysis, and (3) contingent valuation methodology (CVM) |
| Relative Comparison Analysis | considers the comparable sale in terms of whether it is superior, equal, or inferior to the subject. helpful when conditions in the real estate market are not uniform insufficient properties that are similar enough to allow for quantitative analysis. |
| Ranking Analysis | ranks the qualitative comparables in terms of their similarity to the subject. |
| contingent valuation methodology | identify how a particular feature affects the value of a property by asking those who are knowledgeable about that market (i.e., other appraisers and agents). also called the survey method. generally used when there is no sales data available. |
| Cost Approach | analyzes the data to determine current construction costs and expenses.Current construction and repair costs are also used to estimate depreciation on older properties. |
| Income Approach | analyzes the data to determine market rents and typical cash flows for similar properties |
| rental survey | is an analysis of competitive rents used to identify the amount of income the subject property might generate.The properties that are being compared should have the same number of rooms and possess similar amenities. |
| gross rent multiplier (GRM) | a number which, when multiplied by the monthly rental income, will equal the property’s market value. |
| capitalization rate | market-derived ratio reflecting the relationship between the net operating income a property generates and its value. |
| An appraiser should never base value on an average by adding the adjusted sales price of all the comps and dividing the sum by the number of comps used. Averaging can lead to a false result. | |
| Reconciliation | adjustment process of weighing results of the three appraisal methods to arrive at a final opinion of the subject property’s market value. |
| Opinion of Value | the property with the least gross adjustments is considered the most reliable value indicator. The final value must be bracketed within the sales before making any adjustments. |
| Bracketing | selection of market data so that the subject is contained within a range of data sales. They will bracket the value of the subject—that is, one or two of the sales will be higher, and one or two will be lower. |
| An appraiser conducts a rental survey by | identifying non-owner-occupied properties using public or private sources. |
| What is the primary difference between a paired sales analysis and a market sales analysis? | A paired sales analysis examines two identical properties. |
| value | monetary relationship between properties those who buy, sell, or use those properties. must be four elements: demand, utility, scarcity, and transfer ability. In addition, are physical forces, economic influences, political controls, social trends. |
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