1. Real Estate Appraisal
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2. 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

3. Value Market value Assessed value Insurance value Loan value
Estate tax value
Plottage value
Rental value
Replacement value

4. Markets Buyer’s market – excess supply of housing for sale.
Seller’s market – demand exceeds supply.

5. Principles of Value 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

6. HIGHEST AND BEST USE
= that use that will give the property its greatest current value!

7. Valuing a House with Market Comparison Approach

8. Calculating Gross Rent Multiplier
Building
Sales 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
$196,000
$27,762
= 7.06
As a Group:
$805,000
$115,002
= 7.00

9. Costs Approach to Value
Step 1: Estimate land as vacant $ 30,000
Step 2: Estimate new construction cost of similar building $120,000
Step 3: Less estimated depreciation ,000
Step 4: Indicated value of building $108,000
Step 5: Appraised property value $138, by the cost approach

10. Square-foot Method of Cost Estimating

11. Income Approach Variation by Direct Capitalization
Income / Rate = Value
$18,000 / = $200,000

12. Projected Annual Operating Statement (Pro Forma Statement)

13. Direct Capitalization Using an Overall Rate
Income
Overall Rate
= Value
$45,400
= $200,000

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

15. Reconciliation Final Indicated Value $186,000
Market Approach $180,000 x 75% = $138,000
Cost Approach $200,000 x 20% = $ 40,000
Income Approach $160,000 x 5% = $ 8,000
Final Indicated Value $186,000