Modern Real Estate Practice in Illinois Eighth Edition Chapter 19: Real Estate Appraisal ©2014 Kaplan, Inc.

Appraising Regulation of Appraisal Activities Illinois Appraiser Categories –Associate Real Estate Trainee Appraiser –Certified Residential Real Estate Appraiser –Certified General Real Estate Appraiser

Appraising - Competitive Market Analysis Competitive Market Analysis (CMA) –different from an appraisal report –features properties similar to the subject property in size, location, and amenities Broker’s Price Opinion (BPO) –less-expensive alternative

Value Demand –The need or desire for possession ownership, plus final capacity Utility –Usefulness for its intended purposes Scarcity –A finite supply Transferability –Relative ease with which ownership rights are transferred from one person to another

Value Market Value versus Market Price Market Value versus Cost

Value Basic Principles of Value –Anticipation –Change –Competition –Conformity –Contribution –Highest and Best Use –Increasing and Diminishing Returns –Plottage –Regression and Progression –Substitution –Supply and Demand

Three Approaches to Value Sales Comparison Approach –Opinion of value is obtained by comparing the property being appraised (subject property) with recently sold comparable properties. –Adjust for differences

Three Approaches to Value Cost Approach –Reproduction cost –Replacement cost –Determining reproduction or replacement cost Square-foot method Unit-in-place method Quantity-survey method Index method

Three Approaches to Value Cost Approach (cont.) –Depreciation Physical deterioration Functional obsolescence External obsolescence Straight-line method

Three Approaches to Value Income Approach –Gross rent or gross income multipliers Reconciliation –Art of analyzing and effectively weighing the findings from the three approaches

The Appraisal Process The key to an accurate appraisal lies in the methodical collection and analysis of data –General Data Nation, region, city, and neighborhood –Specific Data Details of the subject property and comparables Appraiser’s Report