1. Real Estate Financial and Investment Analysis 1 APPRAISAL THEORY AND PRACTICE WHAT IS THE OBJECTIVE OF AN APPRAISAL? - - ESTIMATE FAIR MARKET VALUE

2. Real Estate Financial and Investment Analysis 2 WHAT IS FAIR MARKET VALUE? VALUE IN CASH OR EQUIVALENT COMPETITIVE MARKET CONDITIONS USUAL FINANCING TERMS ARMS LENGTH KNOWLEDGEABLE, INFORMED BUYER AND SELLER NO UNDUE STIMULUS OR DURESS

3. Real Estate Financial and Investment Analysis 3 WHO USES APPRAISALS? IS THERE A DIFFERENCE BETWEEN INVESTMENT AND FAIR MARKET VALUE? WHAT CREATES VALUE IN THE MARKET PLACE?

4. Real Estate Financial and Investment Analysis 4 AN OVERVIEW OF THE THREE METHODS OF APPRAISAL SALES - COMPARISONS INCOME - CAPITALIZATION COST - REPLICATION

5. Real Estate Financial and Investment Analysis 5 SALES - COMPARISONS WHAT IS IT? WHERE IS IT MOST APPLICABLE? WHAT ARE THE ADVANTAGES AND DISADVANTAGES?

6. Real Estate Financial and Investment Analysis 6 SIMPLE SALES - COMPS EXAMPLE

7. Real Estate Financial and Investment Analysis 7 SALES COMPARABILITY: APPRAISAL - SIMPLE ADJUSTMENT PROCESS 1)REAL ESTATE STRATIFICATION 2)TEMPORAL FACTOR 3)GEOGRAPHY 4)LAND USE / PROPERTY TYPE 5)VALUE CLASSES 6)TERMS OF SALES 7)PROPERTY CHARACTERISTICS

8. Real Estate Financial and Investment Analysis 8 VALUATION BY STATISTICAL INFERENCE: An Extension of the Sales-Comparable Approach The Hedonic Method Parcel ServicesCharacteristicsFMV

9. Real Estate Financial and Investment Analysis 9 HEDONIC APPROACH -- STATISTICAL INFERENCE APPRAISAL AND COMPUTER ASSISTED MASS APPRAISAL STEPS DEFINE SALES SAMPLE SELECT PARCEL CHARACTERISTICS CODE PARCEL CHARACTERISTICS ALALYZE MULTIVARIATE REGRESSION RESULTS REFINE MULTIVARIATE REGRESSION RESULTS - REVISE SAMPLE - REVISE VARIATES VERIFY FINDINGS AND RESULTS

10. Real Estate Financial and Investment Analysis 10 ESTIMATE OF THE MARKET VALUE FUNCTION (Obtained by Two-Stage Least Squares)

11. Real Estate Financial and Investment Analysis 11

12. Real Estate Financial and Investment Analysis 12 INTERPRETATION OF VALUE ESTIMATE TAXATION CAPITALIZATION ACCESSIBILITY PROPERTY CHARACTERISTICS OTHER VARIABLES

13. Real Estate Financial and Investment Analysis 13 INCOME - CAPITALIZATION APPROACH WHAT IS THE RATIONALE FOR USING AN INCOME CAPITALIZATION APPROACH? WHARE ARE LIKELY ADVANTAGES OF THIS METHOD? DISADVANTAGES? HOW DOES THIS METHOD COMPARE TO THE SALES-COMP APPROACH? WHAT INFORMATION DO YOU NEED TO CONDUCT THE INCOME-CAPITALIZATION METHOD OF APPRAISAL? 1. 2. 3. 4.

14. Real Estate Financial and Investment Analysis 14 ESTIMATING GROSS INCOME

15. Real Estate Financial and Investment Analysis 15 ESTIMATING ANNUAL OPERATING EXPENSES

16. Real Estate Financial and Investment Analysis 16 THE CAP RATE: WHAT IS IT AND HOW IS IT USED? CAP RATE NOI FMV Market Data? INCOME APPROACH SCHEMATIC

17. Real Estate Financial and Investment Analysis 17 HOW ARE CAP RATES AND INTEREST RATES RELATED?

18. Real Estate Financial and Investment Analysis 18 COST - APPROACH WHY DO WE USE THE COST APPROACH? WHAT ARE ITS LIMITATIONS AND ADVANTAGES? HOW DOES THE COST APPROACH COMPARE TO THE SALES AND INCOME APPROACHES? BASIC ASSUMPTIONS: PERFECTLY COMPETITIVE MARKET! C - D = V

19. Real Estate Financial and Investment Analysis 19 FOUR BASIC DATA ELEMENTS OF COST APPROACH 1. 2. 3. 4.

20. Real Estate Financial and Investment Analysis 20 COST APPROACH EXAMPLE

21. Real Estate Financial and Investment Analysis 21 WHERE IS THE COST APPROACH MOST EFFECTIVE AND WHY?

22. Real Estate Financial and Investment Analysis 22 REPLACEMENT COST VS. REPRODUCTION COST

23. Real Estate Financial and Investment Analysis 23 METHODS FOR ESTIMATING COSTS QUANTITY SURVEY UNITS-IN-PLACE UNITS-COMPARISON BASE-BUILDING METHOD / INDEX ADJUSTMENT

24. Real Estate Financial and Investment Analysis 24 DEPRECIATION CONSIDERATION PHYSICAL TECHNOLOGICAL ECONOMIC

25. Real Estate Financial and Investment Analysis 25 SOME OTHER TECHNIQUES GROSS OR NET INCOME MULTIPLIER METHODS RESIDUAL CAPITALIZATION MORTGAGE EQUITY CAPITALIZATION