© 2010 by Cengage Learning Real Estate Appraisal Chapter 18 ________________ Real Estate Appraisal

© 2010 by Cengage Learning  An estimate of value.  Three approaches to estimating value: ◦ Market – comparable sales data ◦ Cost – construction cost plus land value ◦ Income – monetary returns of property capitalized

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BuildingSales Price Gross Annual Rents Gross Rent Multiplier No.1$245,000 $34,900= 7.02 No.2$160,000 $22,988= 6.96 No.3$204,000 $29,352= 6.95 No.4 As a Group: $196,000 $805,000 $27,762 $115,002 = 7.06 = 7.00

© 2010 by Cengage Learning Step 1: Estimate land as vacant $ 30,000 Step 2: Estimate new construction cost of similar building $120,000 Step 3: Less estimated depreciation -12,000 Step 4: Indicated value of building $108,000 Step 5: Appraised property value $138,000 by the cost approach

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Income / Rate = Value $18,000 / 0.09 = $200,000 Variation by Direct Capitalization

© 2010 by Cengage Learning Operating expense ratio: $31,070 / $79,800 = 38.9%

© 2010 by Cengage Learning Income Overall Rate = Value $45, = $484,215

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Market Approach $180,000 x 75% = $135,000 Cost Approach$200,000 x 20% = $ 40,000 Income Approach $160,000 x 5% = $ 8,000 Final Indicated Value $183,000

© 2010 by Cengage Learning Complete appraisal Limited appraisal Types of Appraisals Self-contained appraisal report Summary report Restrictive report Reporting Options

© 2010 by Cengage Learning 1. Letter report 2. Form report 3. Narrative report 4. Review appraisals 5. Real estate analysis

© 2010 by Cengage Learning  Certified General Appraiser  Certified Residential Appraiser  State licensed appraiser  Provisional licensed real estate appraiser  Appraiser trainee

© 2010 by Cengage Learning Principle of Anticipation Principle of Substitution Highest and best use of a property Principle of competition Principle of supply and demand Principle of change Principle of contribution Principle of conformity Principles of Value

© 2010 by Cengage Learning  Market value  Assessed value  Insurance value  Loan value  Estate tax value  Plottage value  Rental value  Replacement value

© 2010 by Cengage Learning  Buyer’s market – excess supply of housing for sale.  Seller’s market – demand exceeds supply.

© 2010 by Cengage Learning  The American Institute of Real Estate Appraisers (AIREA) ◦ MAI ◦ SRA  Society of Real Estate Appraisers  NATIONAL Association of Independent Fee Appraisers  Farm Managers and Rural Appraisers  National Society of Real Estate Appraisers  American Society of Appraisers

© 2010 by Cengage Learning Appraisal Capitalize Comparables Cost approach Depreciation FIRREA Gross rent multiplier Highest and best use Income approach Market approach Market value Operating expenses Scheduled gross, Projected gross USPAP Key Terms