Post on 23-Dec-2015
transcript
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Outline
I. Appraisal RegulationII. The Concept of ValueIII. Key Appraisal PrinciplesIV. The Appraisal Process
1. Sales Comparison Approach2. Cost Approach3. Income Approach
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I. Appraisal RegulationFinancial Institutions Reform, Recovery and Enforcement Act
(FIRREA) of 1989 4 Appraiser Categories:
1. Trainee Appraiser- 75 hours of classroom instruction - works under the supervision of a certified appraiser
2. Licensed appraisers(discontinued as of July 2004)
3. Certified residential appraisers- 200 hours of classroom instruction- 2,500 hours of appraisal experience- have at least an associates degree or 21 college semester credit hours- state exam at end of min of 2 years - can appraise single family homes, residential lots, res. income properties up to 4 units
4. Certified general appraisers- 300 hours of classroom instruction- 3,000 hours of appraisal experience- have at least a bachelor’s degree or 30 hours of college semester credit hours- state exam after min of 2 years- can appraise all residential properties & commercial, industrial, income properties with any # of units, apartment, & interest in real estate
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I. Appraisal Regulation
Important Changes to Appraisal Lawsince April 1, 2009:
1. Inclusion of the Market Conditions Addendumdescribes market trends
2. Home Valuation Code of Conduct-puts up a “firewall” between the and the appraiser-appraisal management companies select the appraiser
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II. The Concept of Value
Def. of market value:
. Investment value Price versus market value Market value versus cost of production Other types of value:
Insurable value Assessed & Taxable value
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Example: Taxable Value
What is the taxable value and property tax of a $180,000 property in Pinellas county, assuming 17 millage points, a $50,000 homestead exemption and a 100% assessment ratio?
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III. Key Appraisal Principles
The following four principles affect real estate values and are essential to real estate appraisals:1. Anticipation: The value of a property depends on
to the property owner in the future.2. Change: Economic, social, political and environmental forces are and affect real estate values. 3. Substitution: A buyer will pay no more for a property than the value of property.4. Contribution: The value of a component part of a house depends on .
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IV. The Appraisal Process
The process to create a Uniform Residential Appraisal Report (URAR):
Definition of the problem/purpose of report Data selection and collection Application of the three approaches to valuation:
1) Sales comparison approach2) Cost approach3) Income approach
Reconciliation of value indications Report of defined value
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The Appraisal Process:1. Sales Comparison Approach
Comparable sales data selection Elements of comparison
- Property rights conveyed- Conditions of sale- Financing terms- Market conditions- Location characteristics- Physical characteristics
Adjustment of sales data if comparable is superior->subtract the value of the element from the comparable’s value
if comparable is inferior-> add the value of the element to the comparable’s value
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Example: Sales Comparison Approach
Given the information below, determine the subject
value, assuming the value of a 1-car garage is $5,000.
Subject Comp1 Comp2 Comp3Sales Price ? $105,000 $93,000 $113,000Element ofComparison: “Garage” 2 2 1 4Adjustment Adjusted Value
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The Appraisal Process:2. Cost Approach
Estimate site value+ estimated production cost(reproduction cost vs. replacement cost)
- estimated accrued depreciation from:a) physical deteriorationb) functional obsolescencec) economic obsolescence
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Example: Cost Approach
An appraiser is supposed to appraise themarket value of a church. She has estimatedthe land value to be $350,000 and the reproduction cost of the building to be$800,000. However, the current building isquite old. The estimated depreciation fromnormal wear and tear is $230,000 and thedepreciation from functional obsolescence is4% of reproduction cost. What is the marketvalue of the church?
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The Appraisal Process: 3. Income Approach
Gross income multiplier: GIM = Value/Annual Gross Income
Net income capitalization: Capitalization Rate = Annual Net
Income/Value Discounted cash flow (NPV)
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Example: Income Approach GIM
You are trying to value your commercial property. Assume that three comparable properties have a GIM of 9.7, 9.5, and 10.8. If your property has annual gross income of $125,000, what is the most probably selling price?
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Example: Income Approach Net Income Capitalization
You are assigned to appraise the value of an office building that has an annual net income of $340,000. The two comparables you have found have a capitalization rate of 9.8% and 10.2%. At what amount would you appraise the building?