© 2012 Cengage Learning

Real Estate Appraisal Chapter 17

© 2012 Cengage Learning In This Chapter You will study the three approaches to estimating value.

© 2012 Cengage Learning Appraisal 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

© 2012 Cengage Learning Valuing a House Market Comparison Approach

© 2012 Cengage Learning Competitive Market Analysis

© 2012 Cengage Learning 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 Calculating Gross Rent Multiplier

© 2012 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 Costs Approach to Value

© 2012 Cengage Learning Square-foot Method of Cost Estimating

© 2012 Cengage Learning Income / Rate = Value $18,000 / 0.09 = $200,000 Income Approach Variation by Direct Capitalization

© 2012 Cengage Learning Projected Annual Operating Statement ( Pro Forma Statement )

© 2012 Cengage Learning Income Overall Rate = Value $45, = $200,000 Direct Capitalization Using an Overall Rate

© 2012 Cengage Learning

Overall Rates - 10-year Holding Period, 25-year Loan for 75% of the Purchase Price, 10% Investor Return

© 2012 Cengage Learning Appraisal Regulations The Appraisal Foundation Federal Regulation Developing the Appraisal Appraisal Standards – USPAP Appraisals Required Reporting Standards

© 2012 Cengage Learning 1. Letter report 2. Form report 3. Narrative report 4. Review appraisals 5. Real Estate Analysis Formats of Appraisal Reports

© 2012 Cengage Learning Appraiser License Certified General Appraiser Certified Residential Appraiser State licensed appraiser Provisional licensed real estate appraiser Appraiser trainee

© 2012 Cengage Learning Texas appraiser licensing and certification board requirements

© 2012 Cengage Learning Texas appraiser licensing and certification board requirements

© 2012 Cengage Learning Texas Regulations TALCB – If you have not followed USPAP guidelines then include this statement:  THIS IS AN OPINION OF VALUE OR COMPARATIVE MARKET ANALYSIS AND SHOULD NOT BE CONSIDERED AN APPRAISAL.  BROKER’S PRICE OPINION  COMPARATIVE MARKET ANALYSIS

© 2012 Cengage Learning HIGHEST AND BEST USE That use that will give the property its greatest current value!

© 2012 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

© 2012 Cengage Learning Value Market value Assessed value Insurance value Loan value Estate tax value Plottage value Rental value Replacement value

© 2012 Cengage Learning Markets Buyer’s market – excess supply of housing for sale. Seller’s market – demand exceeds supply.

© 2012 Cengage Learning Key Terms 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