1. Real Estate Principles, 11th Edition
By Charles F. Floyd
and Marcus T. Allen

2. Chapter 9
Real Estate Appraisal

3. What is the property worth?
Sellers want to know
Buyers want to know
Lenders want to know
Insurers want to know
Tax assessors want to know
Appraisers are professionals trained to form credible opinions of the value of properties.

4. Appraisal Regulation FIRREA of 1989 Appraisal Foundation
AQB – Appraisal Qualification Board
ASB – Appraisal Standards Board

5. AQB License & Certification Guidelines
Trainee appraisers
Licensed appraisers
Certified residential appraisers
Certified general appraisers

6. Uniform Standards of Professional Appraisal Practice from the ASB
USPAP
For example Standard 1 requires appraisers to carefully examine the appraisal problem to be solved and to perform the necessary tasks to form a credible opinion of value.

7. What Is Value?
Market value – see page 184 for very detailed definition from FIRREA
Investment value – worth to a particular investor based on that investor’s personal standards of investment acceptability
Price versus market value

8. What Is Value? cont. Market value versus cost of production
Other types of value
Assessed value
Insurable value

9. Key Appraisal Principles
Anticipation
Change
Substitution
Contribution

10. The Appraisal Process Step 1 Definition of the problem
Type of value
Description of property
Specific property rights
Use of the appraisal
Effective date
Step 2 Data selection and collection
General market analysis
Specific property analysis
Step 3 Highest and best use analysis
As though vacant
As improved

11. The Appraisal Process, cont.
Step 4 Application of the three approaches to valuation
Sales comparison approach
Cost approach
Income approach
Step 5 Reconciliation of value indications
Step 6 Report of defined value

12. Highest and Best Use Analysis
To form an opinion of market value, appraisers must first decide how “the market” will use the property. Competition between potential buyers will result in the property being used in its highest and best use.
Highest and Best Use must be:
Legally permissible
Physically possible
Financially feasible
Maximally productive

13. Sales Comparison Approach
Comparable sales data selection
Adjustment of sales data
Elements of comparison
Property rights conveyed
Conditions of sale
Financing terms
Market conditions
Locational characteristics
Physical characteristics
Applying the sales comparison approach
See Table 9.1 Sales Comparison Market Data Grid

14. Cost Approach Estimating site value Estimating production cost
Reproduction cost
Replacement cost
Estimating accrued depreciation
Physical deterioration
Functional obsolescence
Economic obsolescence
Applying the cost approach
See Table 9.2 Summary of Cost Valuation of an Apartment Property

15. Income Approach Gross income multiplier Net income capitalization
GIM = Value/Gross Income
Net income capitalization
Capitalization Rate = Net Income/Value