1. Ch 1: Real Property and Its Appraisal
Chapter 1
Ch 1: Real Property and Its Appraisal

2. Definition of property to be appraised
An Appraisal is the act of developing an opinion of value for “real estate”
“Real estate” as the term is usually used, includes both the physical asset and the legal definitions of real property
Appraisers may be asked to value real estate, real property, or some combination.
The typical assignment is to value fee simple ownership of a given parcel of real estate
Real estate typically does NOT include personal property
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3. Real Estate, Real Property, and Personal Property
Real estate is a physical thing. It is the land and its permanent improvements such as –
buildings, fences, walls, decks;
improvements to the land that make it suitable for structures – e.g., streets, walkways and utilities (waterlines, electrical conduits).
Real property is the rights in realty. Real property cannot be touched but can be appraised and sold.
Personal property is tangible but not affixed to the real estate.
A fixture such as a kitchen sink was personal property in the showroom, but once affixed it is part of the real estate.
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4. Real Estate: Fixtures vs Trade Fixtures
A fixture such as a kitchen sink was personal property in the showroom, but once affixed it is part of the real estate.
Often real estate contracts will specify that window treatments (shades, curtains, drapes) stay with the real estate. They become fixtures in this contract.
Trade fixtures such as shelves or a pizza oven are attached to rented structures for purposes of the tenant’s business.
Typically, they are not considered part of the real estate.
There can exceptions made by local law and custom.
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5. Why is an appraisal needed?
Ownership transfers
Applications for mortgage financing
Lending decisions -this is the most common assignment
Litigation and divorce settlements
Investment decisions
Valuing a portfolio of assets for accounting or regulatory reporting purposes.
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6. Type of value required depends on the purpose of the appraisal
Most appraisals require an opinion of the cash equivalent amount a property would sell for if marketed for a reasonable amount of time.
In some cases an investor may want to know the value from a particular point of view: e.g., the investor is assembling adjacent parcels to manage them as a whole. Or the investor wants to know the cost to rebuild.
In other cases there are extraordinary conditions such as a government subsidized interest rate on the loan.
Any extraordinary conditions must be clearly stated in the purpose of the report
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7. Review exercises are strongly recommended
See pp
Suggested solutions begin on page 416.
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