Finance 353: Real Estate Valuation A Short Course in the Valuation of Residential and Commercial Real Estate Wayne Foss, MBA, MAI, CRE Foss Consulting Group

2 Introduction n Student Introduction ­ Name ­ Academic Level ­ Real Estate Experience ­ What do you expect to get from this course? ­ Future Goals n Instructor Introduction

3 Course Syllabus n Objectives  To develop an analytical approach to identifying and solving real estate problems n Course Coverage  techniques of appraisal analysis  development of appraisal theories  recent regulatory changes n Prerequisites  Fin 351 or equivalent

4 Course Syllabus, con’t... n Required Textbook  The Appraisal of Real Estate F 12th Edition F The Appraisal Institute n Course Project  Appraisal of a Single Family Residence F Group Project (3 to 4 students to a group) F Property of your choice F length approximately 30 to 50 pages including exhibits F presentation of findings in class

5 Course Syllabus, con’t... n Examinations u Type F 50% Multiple Choice or True False Closed Book, Closed Notes F 50% Short Answer or Problems Open Book, Open Notes u No Partial Credit u Calculators are permitted, computers are not u Make-up examinations are not permitted F Unless there an extraordinary circumstance

6 Course Syllabus, con’t... n Final Grade Weighting Policy u Mid-term 30% u Final Exam 35% u Course Project 30% u Class Participation 5% F Total:100%

7 Course Syllabus, con’t... The Final Course Grade will be based on the following Scale:

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9 Class Schedule DATETOPIC ASSIGNMENT Aug. 25Introduction- Sept. 1Nature of Value, Foundations, MarketsCh The valuation process, Appraisal ReportsCh 4, Fee Simple and Partial InterestCh 5 Data Collection/NeighborhoodsCh Land/Building DescriptionCh Midterm - Oct. 6Special Assignment 11 Highest and Best Use Analysis, Land ValuationCh Highest and Best Use Analysis, Land ValuationCh Cost Approach & DepreciationCh 13-16

10 Class Schedule DATETOPIC ASSIGNMENT Nov 3 Sales Comparison ApproachCh Sales Comparison ApproachCh Income ApproachCh Fall Recess Dec. 1Yield Capitalization and DCFCh 23, 24 ReconciliationCh 25 8Case Presentations 15Final Examination

11 Nature of Appraisals, Value and Real Estate Markets n Nature of Appraisals u Definitions u Purpose and Intended Use u Distinctions between real estate, real property and personal property n Nature of Value u Price versus Cost u Types of Value u Economic Principles n Real Estate Markets u Characteristics u Market Analysis

12 The valuation process and Appraisal Reports n The Valuation Process u A systematic procedure employed to provide the answer to a client’s questions about the value of real property n Appraisal Reports u Complete or Limited u Self-contained, Summary or Restricted

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14 Fee Simple and Partial Interests, Data Collection and Neighborhoods n Fee Simple and Partial Interests u Types of Estates u Lease Interests u Easements n Data Collection and Analysis u General Data u Specific Data n Neighborhoods and Districts u A Neighborhood is - F A group of complementary land uses u A District is - F Characterized by homogeneous land uses

15 Land and Building Descriptions n Land Description u Types of Legal Descriptions u Site analysis u Sources of Data n Building Description u Architecture u Inspection u Improvement Analysis

16 Highest and Best Use Analysis, Land Valuation n Highest and Best Use Analysis u Land or Site as though vacant u Property as Improved u Systematic Approach to analysis F Legally Permissibility, Physically Possible, Financial Feasibility, Maximally Productive n Land Valuation u Approaches F Sales Comparison F Allocation and Abstraction F Income Capitalization u Units of Comparison

17 The Cost Approach n Building Cost Estimates u Reproduction Cost u Replacement Cost n Depreciation u Physical Deterioration u Functional Obsolescence u External Obsolescence u Curable or Incurable

18 The Sales Comparison Approach n The Sales Comparison Approach u Five Step Model F Research F Data verification F Units of comparison F Compare with sale property with the subject F Reconciliation u The identification and measurement of adjustments u Types of adjustments u Adjustment Process

19 The Income Approach n Ownership Interests n Market Value versus Investment Value n Five Step Model u Research u Data verification u Reconstructed Operating Statement u Selection of the Appropriate Capitalization method(s) and the Capitalization of Income u Reconciliation n Derivation of Rates

20 Yield Capitalization, Discounted Cash Flow and Reconciliation n Yield Capitalization, Discounted Cash Flow u Time Concept u Data Requirements u Applications n Reconciliation of Value Indications u A Review u Appropriateness of the Approaches u The Final Value Opinion F A Range or a Point Estimate?

21 Case Presentations and the Appraisal Report n Case Presentations u 3 to 4 students to a group u 15 to 20 minute presentation of findings n The Appraisal Report u Complete Self-Contained Format u 30 to 50 pages

22 So That’s An Introduction to Real Estate Valuation Wayne Foss, MBA, MAI, CRE, Fullerton, CA USA Phone: (714) Fax: (714)