Real Estate Appraisal and You Basic Real Estate Appraisal: Principles & Procedures – 9 th Edition © 2015 OnCourse Learning Chapter 1

SLIDE GUIDE Top = Slide Title or Main Topic Body = Main Content Upper Right = Textbook Page # Bottom Right = Slide Number ( # ) 2 Page # © 2015 OnCourse Learning

STUDENT LEARNING OUTCOMES Define the term Appraisal Differentiate between a Formal & Informal Appraisal; and between an Appraisal and Appraisal Report List main uses of Appraisals Outline the Ethics Rule of USPAP List important reason for studying appraisal 3 Page 2 © 2015 OnCourse Learning

1.1 WHAT IS AN APPRAISAL? …an Estimate or Opinion of Value of some object or thing…. 4 Page 3 © 2015 OnCourse Learning

WHAT DO WE MEAN BY VALUE? …the worth, usefulness, or utility of an object to someone for some purpose. 5 Page 3 © 2015 OnCourse Learning

MARKET VALUE OPINION The purpose of most appraisals Most easily defined as the…. “…..most probable selling price of a property in a competitive and open market.” 6 Page 3 © 2015 OnCourse Learning

INFORMAL APPRAISALS Our basis for judging if prices for items we purchase are reasonable We develop an intuitive knowledge of prices through experience (shopping) “Market Analyses” or BPO’s are sometimes informal appraisals Some are very professional and may contain same content found in a Formal Appraisal 7 Page © 2015 OnCourse Learning

FORMAL APPRAISALS “…a means of reaching an opinion of value by the methodical collection and analysis of relevant market data.” Most often reported in writing Although based on supporting data, to a lesser degree they also rely on judgment and intuition 8 Page © 2015 OnCourse Learning

FORMAL vs. INFORMAL APPRAISALS Slide Title:Calibri Bold 40 pt Right Panel:Upper Right is Page # Right Panel:Lower Right is Slide # Figure 1.1 Analysis of Supporting Data vs. Intuition & Experience 9 Page 5 © 2015 OnCourse Learning

THE APPRAISAL REPORT Results of Formal Reports are communicated to the client by an appraisal report – written or oral Professional & legal standards govern form and content 10 Page 5 © 2015 OnCourse Learning

USING APPRAISAL SKILLS Reasons for studying / developing skills: Improving price estimating skills To learn basic appraisal knowledge and terminology Help prepare for licensing exams Assist in understanding appraisals and communication with appraisers 11 Page 6 © 2015 OnCourse Learning

1.2 HOW APPRAISALS ARE USED Appraisals serve two important functions in Society: 1.Assist the public by advising them on questions of property value. 2.Provide an unbiased independent and disinterested opinion of value. 12 Page 6 © 2015 OnCourse Learning

OCCASIONS REQUIRING APPRAISALS Market Transactions Purchase, Sale & Exchange Financing Leasing Management Insurance Coverage Remodeling & Development Feasibility and Highest & Best Use Analysis Exercise of Purchase and Lease Options 13 Page 7 © 2015 OnCourse Learning

OCCASIONS REQUIRING APPRAISALS Legal Transactions Eminent Domain Property Tax Assessment & Tax Appeals Estate, Inheritance, and Gift Taxes Income Tax – Casualty Loss, Depreciation Basis & Capital Gains Reporting Personal & Corporate Legal Actions Environmental Impact Reports Fire or Title Insurance Claims 14 Page 8-9 © 2015 OnCourse Learning

OCCASIONS REQUIRING APPRAISALS Legal Transactions (con’t.) Marital (Divorce) & Partnership Dissolutions Landlord-Tenant & Property Damage Lawsuits Loan Foreclosures (Short Sale / Defaults) Company Liquidation or Merger Bankruptcy Security for Bail Bonds Legal Actions often require Appraisers to Act as and Testify as Expert Witnesses 15 Page 8-9 © 2015 OnCourse Learning

1.3 STANDARDS OF APPRAISAL PRACTICE Uniform Standards of Professional Appraisal Practice (USPAP) USPAP places Ethical Obligations on Appraisers 16 Page 9 © 2015 OnCourse Learning

USPAP RULES ETHICS RULE The Ethics Rule places ethical obligations in three (3) general areas of practice: Conduct Management Confidentiality 17 Page 10 © 2015 OnCourse Learning

ETHICS RULE Conduct (Section) requires… Impartiality, Objectivity & Independence Management (Section) prohibits… Undisclosed fees, commissions, etc. Compensation contingent on value/results False, misleading or exaggerated advertising Lack of a Signed Certification (also see Record Keeping Rule) 18 Page 10 © 2015 OnCourse Learning

ETHICS RULE (con’t.) Confidentiality (Section) limits disclosure of Confidential Factual Data and Assignment Results only to: The Client and those he/she authorizes State licensing agencies and third parties authorized by law A duly authorized professional peer review committee 19 Page 10 © 2015 OnCourse Learning

OTHER USPAP RULES Record Keeping Rule Keep Work File for Five Years Keep Work File Two Years after final disposition of any judicial proceeding where testimony was given 20 Page 11 © 2015 OnCourse Learning

OTHER USPAP RULES Competency Rule Need to be competent to appraise the property by the time you complete the appraisal Client must be advised of competency at time of engagement Disclosure is required 21 Page 11 © 2015 OnCourse Learning

OTHER USPAP RULES Scope of Work Rule An Appraiser must: Identify the problem to be solved Determine and Perform the correct Scope of Work to produce Credible Assignment Results Disclose in the Scope of Work completed in the Report 22 Page 11 © 2015 OnCourse Learning

OTHER USPAP RULES Jurisdictional Exception Rule Use when any part of USPAP is contrary to the law… “..if applicable law or regulation precludes compliance with any part of USPAP, only that part shall be void for that assignment.” 23 Page 11 © 2015 OnCourse Learning

STANDARDS OF PRACTICE (USPAP) Standard 1 Real Property Appraisal Development Identify the problem to be solved Determine the Scope of Work necessary to solve the problem Correctly complete the necessary research and analysis to produce a credible appraisal 24 Page 11 © 2015 OnCourse Learning

STANDARDS OF PRACTICE (USPAP) Standard 2 Real Property Appraisal Reporting An appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading USPAP is currently modified every two years; and discussed in more detail in Chapters 16 & Page 11 © 2015 OnCourse Learning

APPRAISER LICENCING & CERTIFICATION State and Federal Laws requiring that appraisals must meet certain requirements became effective in Appraisals must be performed by licensed or certified appraisers: That conform to appraisal and development standards established by USPAP as published the Appraisal Standards Board (ASB) of The Appraisal Foundation. Whose qualifications must comply with those set by the Appraiser Qualifications Board (AQB) of The Appraisal Foundation. Covered in more detail in Chapter Page 12 © 2015 OnCourse Learning

1.4 USING THIS TEXT How Will the Format of this Book Help You? Preview of material to be covered Student Learning Outcomes Chapter Content Itself (detailed discussions) Chapter Summary List of Important Terms and Concepts Reviewing Your Understanding Questions (answers on Page 622) Practical Application - Appraisal Exercises (most chapters) leading to the production of an Appraisal using the URAR appraisal report form – helpful whether or not you use the ClickFORMS software. 27 Page 12 © 2015 OnCourse Learning

CHAPTER SUMMARY An appraisal is simply an opinion or estimate of value. Points out the importance of formal appraisals vs. informal appraisals. Outlines types of market and legal transactions necessitating appraisals. Summarizes the obligations placed on licensed/certified appraisers by USPAP to ensure professionalism. Reasons for studying appraisal. 28 Page 13 © 2015 OnCourse Learning

IMPORTANT TERMS & CONCEPTS AppraisalJurisdictional Exception Rule Appraisal ReportLegal Transactions Appraisal StandardsMarket Transactions BPOMarket Value Broker Price OpinionProperty Taxation Competency RuleReal Estate Eminent DomainRecord Keeping Rule Ethics RuleScope of Work Rule Formal AppraisalUniform Standards of Professional Appraisal Practice Highest & Best UseValue Informal Appraisal 29 Page 15 © 2015 OnCourse Learning