Real Estate Appraisal Final Updated

Appraisal

An opinion of value.

Appraisers

Must be licensed.

Iowa Appraisers Licensure

Licensure is through the Iowa Division of Banking.

Associate Appraiser

Requires 75 hours of courses, identification of supervisor, background check, and fingerprinting.

Certified Residential Appraiser

Requires experience as an associate for a certain time period, a national exam, and a background check.

Certified General Appraiser

Requires experience as an associate, takes about 4 months, includes a national exam, and a background check.

USPAP

Uniform Standards of Professional Appraisal Practice.

Bundle of Sticks Concept

Valuation requires consideration of all different 'sticks' held by various parties.

Government Ownership of Sticks

Includes taxation, eminent domain, police power, and escheat.

Value

Depends on external factors like context, perception, or utility to someone.

Factors of Value

Utility, scarcity, desire, effective purchasing power.

Effective Purchasing Power

Ability of a person or group to practice in the market.

Price

The amount a buyer will pay for a property.

Future Value

Anticipation of future benefits, as measured at a given point in time.

Highest and Best Use

Indicates the property's optimal economic usage when supply/demand and externalities are in harmony.

Substitution Principle

A key idea behind the sales comparison approach to value.

Valuation Process Goal

Provide a well-supported value conclusion reflecting all pertinent factors.

Cost Approach

Current cost of reproducing or replacing improvements.

Sales Comparison Approach

Analysis of sale of comparable properties adjusted for differences.

Income Approach

Present value of property based on income production.

Identification of the Problem

Includes client, intended use, type of value, effective date, and assignment condition.

Methods in Income Capitalization

Direct capitalization and yield capitalization.

Direct Capitalization

Uses cap rate or income multiplier applied to single year’s income.

Yield Capitalization

Uses multiple years’ income and a reversionary value with a yield rate.

Cost Approach Formula

Land value + cost to reproduce or replace improvements - depreciation.

Cost Approach Utility

Most useful for new or uncommon properties.

Client in Appraisal

The person who engages the appraiser.

Intended Users in Appraisal

Determined by the appraiser, with the client always being one.

Value Modifier in Appraisal

A term that must always include a modifier (market, assessed, use value, etc.).

Market Value

Objective observation of collective market actions.

Assessed Value

Value set for taxation purposes based on property assessment.

Use Value

Value a specific property has for a specific use.

Investment Value

Value to a specific investor based on their criteria.

Insurable Value

The value of an asset as covered by an insurance policy.

Deposition Value

Value in cases of distressed sales with shorter exposure time.

Liquidation Value

Value with very short exposure time due to extreme compulsion to sell.

Life Estate

Rights of use limited to the lifetime of a designated party.

Easements

Interest in real estate that transfers use but not ownership.

Dominant Estate

Benefits from the easement.

Servient Estate

Burdened by the easement.

Scope of Work

Determines the solution to the appraisal problem.

Forces Influencing Value

Social, governmental, environmental, economic factors.

Social Influences on Value

Focus on demographic characteristics of market participants.

Governmental Influences on Value

Includes property taxes, zoning, and public services.

Environmental Influences on Value

Natural or man-made features affecting property location.

Economic Influences on Value

Regulations affecting real estate finance and market conditions.

Things to Consider for Economic Trends

Household income, consumer activity.

Real Estate Markets

Groups conducting real estate transactions.

Submarkets

Divisions reflecting specific buyer and seller preferences.

Market Segmentation

Identifying and analyzing submarkets within a larger market.

Disaggregation

Grouping properties with similar attributes.

Raw Land Definition

Land without any improvements.

Site Definition

Land improved in some way, with potential on-site or off-site improvements.

Plottage Definition

Increment of value from combining multiple sites.

Architectural Style

Character of a building’s form and ornamentation.

Functional Utility

Ability of a property to perform its intended function.

Market Analysis

Study of supply and demand for a specific product in a specific market area.

Marketability Analysis

Focuses on how a specific property is expected to perform.

Market Analysis Expected Performance

How a type of property is expected to perform in a market.

Highest and Best Use Definition

The use that results in the highest value for real estate.

Vacant Use Methodology

Presumed use based on the land being vacant.

As Improved Use Methodology

Suggested use of the property as it currently exists.

Sales Comparison Approach Preference

Generally preferred method for land valuation.

Market Extraction Definition

Land value estimated by deducting improvement value from sale price.

Sales Comparison Approach Conclusion

Supporting opinion of market value through comparable properties.

Appraisal Principle of Substitution

A buyer will not pay more for a property than an equally desirable substitute.

Transactional Adjustments

Real property rights conveyed, Financing terms , Conditions of sale, Expenditures made immediately after purchase

Property Adjustments Categories

Location, physical characteristics, economic characteristics, legal characteristics.

Reconcile Value Estimations

Using judgment, not necessarily an average.

Adjustment Principles

Adjust comparables to try and make them like the subject.

Direct Capitalization Value Conclusion

Based on the income stream produced.

Reproduction Cost Definition

What it would take to recreate the exact property.

Replacement Cost Definition

Cost of a substitute using contemporary materials.

Categories of Depreciation

Physical deterioration, functional obsolescence, external obsolescence.

Final Value Conclusions Formats

Single value, value range, or value relative to a benchmark.