1. Finance 353: Real Estate Valuation A Short Course in the Valuation of Residential and Commercial Real Estate Wayne Foss, MBA, MAI, CRE Foss Consulting Group Email: wfoss@fossconsult.com

2. 2 Introduction n Student Introduction ­ Name ­ Academic Level ­ Real Estate Experience ­ What do you expect to get from this course? ­ Future Goals n Instructor Introduction

3. 3 Course Syllabus n Objectives  To develop an analytical approach to identifying and solving real estate problems n Course Coverage  techniques of appraisal analysis  development of appraisal theories  recent regulatory changes n Prerequisites  Fin 351 or equivalent

4. 4 Course Syllabus, con’t... n Required Textbook  The Appraisal of Real Estate F 12th Edition F The Appraisal Institute n Course Project  Appraisal of a Single Family Residence F Group Project (3 to 4 students to a group) F Property of your choice F length approximately 30 to 50 pages including exhibits F presentation of findings in class

5. 5 Course Syllabus, con’t... n Examinations u Type F 50% Multiple Choice or True False Closed Book, Closed Notes F 50% Short Answer or Problems Open Book, Open Notes u No Partial Credit u Calculators are permitted, computers are not u Make-up examinations are not permitted F Unless there an extraordinary circumstance

6. 6 Course Syllabus, con’t... n Final Grade Weighting Policy u Mid-term 30% u Final Exam 35% u Course Project 30% u Class Participation 5% F Total:100%

7. 7 Course Syllabus, con’t... The Final Course Grade will be based on the following Scale:

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9. 9 Class Schedule DATETOPIC ASSIGNMENT Aug. 25Introduction- Sept. 1Nature of Value, Foundations, MarketsCh 1-3 8 The valuation process, Appraisal ReportsCh 4, 26 15 Fee Simple and Partial InterestCh 5 Data Collection/NeighborhoodsCh 7-8 22Land/Building DescriptionCh 9-10 29Midterm - Oct. 6Special Assignment 11 Highest and Best Use Analysis, Land ValuationCh 11-12 20 Highest and Best Use Analysis, Land ValuationCh 11-12 27 Cost Approach & DepreciationCh 13-16

10. 10 Class Schedule DATETOPIC ASSIGNMENT Nov 3 Sales Comparison ApproachCh 17-19 10 Sales Comparison ApproachCh 17-19 17 Income ApproachCh 20-22 24Fall Recess Dec. 1Yield Capitalization and DCFCh 23, 24 ReconciliationCh 25 8Case Presentations 15Final Examination

11. 11 Nature of Appraisals, Value and Real Estate Markets n Nature of Appraisals u Definitions u Purpose and Intended Use u Distinctions between real estate, real property and personal property n Nature of Value u Price versus Cost u Types of Value u Economic Principles n Real Estate Markets u Characteristics u Market Analysis

12. 12 The valuation process and Appraisal Reports n The Valuation Process u A systematic procedure employed to provide the answer to a client’s questions about the value of real property n Appraisal Reports u Complete or Limited u Self-contained, Summary or Restricted

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14. 14 Fee Simple and Partial Interests, Data Collection and Neighborhoods n Fee Simple and Partial Interests u Types of Estates u Lease Interests u Easements n Data Collection and Analysis u General Data u Specific Data n Neighborhoods and Districts u A Neighborhood is - F A group of complementary land uses u A District is - F Characterized by homogeneous land uses

15. 15 Land and Building Descriptions n Land Description u Types of Legal Descriptions u Site analysis u Sources of Data n Building Description u Architecture u Inspection u Improvement Analysis

16. 16 Highest and Best Use Analysis, Land Valuation n Highest and Best Use Analysis u Land or Site as though vacant u Property as Improved u Systematic Approach to analysis F Legally Permissibility, Physically Possible, Financial Feasibility, Maximally Productive n Land Valuation u Approaches F Sales Comparison F Allocation and Abstraction F Income Capitalization u Units of Comparison

17. 17 The Cost Approach n Building Cost Estimates u Reproduction Cost u Replacement Cost n Depreciation u Physical Deterioration u Functional Obsolescence u External Obsolescence u Curable or Incurable

18. 18 The Sales Comparison Approach n The Sales Comparison Approach u Five Step Model F Research F Data verification F Units of comparison F Compare with sale property with the subject F Reconciliation u The identification and measurement of adjustments u Types of adjustments u Adjustment Process

19. 19 The Income Approach n Ownership Interests n Market Value versus Investment Value n Five Step Model u Research u Data verification u Reconstructed Operating Statement u Selection of the Appropriate Capitalization method(s) and the Capitalization of Income u Reconciliation n Derivation of Rates

20. 20 Yield Capitalization, Discounted Cash Flow and Reconciliation n Yield Capitalization, Discounted Cash Flow u Time Concept u Data Requirements u Applications n Reconciliation of Value Indications u A Review u Appropriateness of the Approaches u The Final Value Opinion F A Range or a Point Estimate?

21. 21 Case Presentations and the Appraisal Report n Case Presentations u 3 to 4 students to a group u 15 to 20 minute presentation of findings n The Appraisal Report u Complete Self-Contained Format u 30 to 50 pages

22. 22 So That’s An Introduction to Real Estate Valuation Wayne Foss, MBA, MAI, CRE, Fullerton, CA USA Phone: (714) 871-3585 Fax: (714) 871-8123 Email: wfoss@fossconsult.com