AZK RE L-11 C-16 Appraisal

- is an option of value based on supportable evidence and approved methods

- is an opinion to market value on a property given to a lender or client with detailed market information

- independent professional trained to provide an unbiased (анба’ест - беспристрастный) option of value in an impartial (справедливый) and objective manner following an identified appraisal process

Appraiser Independence Requirements

• - Financial Institution Reform Recovery and Enforcement Act
• - Title XI 
•    - any appraisal be performed by competent individual who is licensed or certified by the state in which the appraiser practices

- financial transaction in which federal financial institution or regulatory agency is engaged

- residential property valued at 250,000 or less

• - Appraiser Qualifications Board
• - confirms State Licensing and Certification Criteria for appraisers

- non-residential properties valued at more than 250,000

• - Uniform Standards of Professional Appraisal Practice (book)
•      - established by
• - ASB
•    - Appraisal of Standards Board

• - Comparative market analysis
• - REP can prepare CMA
• - not an appraisal
• - to discuss the range of value of the property

• - details analysis of market condition
• - features (особенность) of subject property and comparable properties in the neighborhood

• - recently closed properties (sold) 
• - properties currently on the market
• - properties that did not sell

• - Broker's price opinion
• - less expensive alternative of evaluating property
• - should not be confused with an appraisal

- collection and analysis of data to arrive at a justifiable conclusion of values

• 1) General data
•    - nation 
•    - region
•    - city
•    - neighborhood

• 2) Specific Data
•    - type and features of improvements
•    - comparable similar properties

• - identify interest been apprised
• - state the purpose and intended use
• - define the value
• - state the dates (effective and of the report)
• - list all assumptions and limiting conditions
• - describe the highest and best use

• 1) Identify the problem
• 2) Determine the scope of work
• 3) Gather, record and verify the necessary data
•      a) General Data 
•      b) Specific Data (improvements)
•      c) Data for Each Approach (sales, cost, income)
• 4) Analyze data
• 5) Form opinion of land value
• 6) Opinion of value by each of the three approaches
• 7) Reconcile (согласовать) values for final opinion of value
• 8) Report final opinion of value

Uniform Residential Appraisal Report

- monetary worth based on desirability

• - DUST
• - Demand
•    - need or desire of possessions or ownership
• - Utility
•    - property's usefulness for its intended purposes
• - Scarcity
•    - (нехватка) a finite (ограниченный) supply
• - Transferability
•    - RE with which ownership rights are transferred from one person to another

• - opinion of property’s worth 
• - most probable price
• - it is not average price or highest price possible

• 1) Both unrelated and acting without undue pressure
• 2) Both well informed of the properties used and potential
• 3) Reasonable time is allowed
• 4) Payment is made
• 5) Price paid for the property is a normal market price

- asking, offer or sales price of a property

- does not represent its market value (could be the same)

- economic principles that can affect the value of a real estate

• 1) Anticipation
•    - searching events will occur
• 2) Change
•    - tornadoes, fires, routine wear and tear
• 3) Competition
•    - interaction of supply and demand
• 4) Conformity
•    - property is in harmony with its surroundings
• 5) Contribution
•    - value of any part ÷ value of the whole parcel
• 6) Highest and best use
•    - must be possible, permitted, feasible, productive
• 7) Increasing and diminishing returns
•    - improvements increase value up a to certain point
• 8) Plottage
•    - 1 combined value might be > 2 individual
• 9) Regression and progression
•    - value is affected by surrounding properties
• 10) Substitution
• - how much it would cost to purchase equal property
• 11) Supply and demand
•    - supply ↑ value ↓
•    - supply ↓ value ↑

• - Basic principles of value
• - value is created by the expectation that searching events will occur
• - rumor that major employer in the area will be "going out of business" / "moving to the area"

• - Basic principles of value
• - no physical or economic condition remains constant
• - tornadoes, fires, routine wear and tear

• - Basic principles of value
• - interaction of supply and demand creates competition
• - success of retail store may cause investors to open similar stores in the area

• - Basic principles of value
• - maximum value is created when a property is in harmony with its surroundings
• - buildings should be similar in design construction size and age

• - Basic principles of value
• - value of any part of a property is measured by its effect of the value of the whole parcel
• - swimming pool, greenhouse may not add value to the property equal to its cost
• - remodeling kitchen or bathroom might

• - Basic principles of value
• - the use of property must be
•    1) physically possible 
•    2) legally permitted
•    3) economically and financially feasible 
•    4) most portable or maximally productive

• - Basic principles of value
• - addition of improvements to land and structures tens to increase the property's market value only up to a certain point
• - additional improvements no longer affect a property's value

• - Law Cost of Increasing Returns
•    - as long as money spent producers and increase of income or value

• - Law of Diminishing Returns
•    - at the point where, additional improvements do not increase income or value

• - Basic principles of value
• - when the consolidation of adjacent lots into a single larger one produces a greater total land value
• - amount that the value of the combined properties is increased by successful assemblage
• - 2 adjacent lots valued 35,000 each might have a combined cost of 90,000

- process of merging two separately owned lots under one owner

• - Basic principles of value
• Regression
•    - better quality property is adversely affected by the presence of a lesser quality property

• Progression
•    - value of a modest home would be higher if it were located among larger, fancier properties

• - Basic principles of value
• - maximum value of a property tends to be set by how much it would cost to purchase an equally desirable and valuable substitute property

• - Basic principles of value
• - supply ↑ value ↓
• - supply ↓ value ↑

• 1) Sales Comparison Approach
•    - "subject property" with "comparable property"
• 2) Cost Approach
•    - obtaining Total Property Value
• 3) Income Approach
•    - based on the present value of the right to future income

• - or Market data approach
• - for single family homes
• - comparing "subject property" with "comparable property"

• 1) Property Rights
•    - “less than fee sample”, presence of lease
• 2) Financing Concessions
•    - mortgage, owning financing
• 3) Market Conditions 
•    - interest rate, supply and demand
• 4) Conditions of Sale
•    - foreclosure, between family members
• 5) Market Conditions Since the Date of Sale
•    - between date of sale and date of appraisal
• 6) Location or Area Preference
• 7) Physical Features and Amenities
•    - structures age, size and condition

• - element of Comparison in Sales Comparison Approach
• - adjustment must be made when (“less than fee sample”)

• - element of Comparison in Sales Comparison Approach
• - Financing Terms under which property was sold, including
• - mortgage, owner financing

• - element of Comparison in Sales Comparison Approach
• - interest rate 
• - supply and demand

• - element of Comparison in Sales Comparison Approach
• - motivational factors that would affect the sale
• - foreclosure 
• - sale between family members

• - element of Comparison in Sales Comparison Approach
• - between date of sale and date of appraisal

- element of Comparison in Sales Comparison Approach

• - element of Comparison in Sales Comparison Approach
• - structures age size and condition

• 1) Estimate Value of Land
• 2) Estimate Current Cost of construction
• 3) Estimate amount of Accrued Depreciation
• 4-5) Formula
•   
• Total Property Value = Curr (const) Cost - Accr Dep + Land

- a loss in value for any reason

- actual loss in value cause by property deterioration, damage or obsolescence

- an annual deduction from taxable income for a term of years, as permitted by IRS

• 1) Physical Deterioration (изнашивание)
• 2) Functional Obsolescence (устаревание)
• 3) External Obsolescence

- Class of Depreciation

•    - curable
•       - need of repair (painting)

•    - incurable
•       - structural deterioration 
•       - the cost of major repair might not world the Financial investment

• - Class of Depreciation
• - loss in value from the market's response to the item

•    - curable
•       - can be replaced at a coast that would be offset by the anticipated increase in volume
•       - anticipated increase in volume > cost of cure

•    - incurable
•       - cost of cure would be greater than its resulting increase in value
•       - anticipated increase in volume < cost of cure

• - Class of Depreciation
• - caused by negative factors not on the subject property
• - close approach to a polluting factory

• - or Economic Age / Life Method
• - easiest least precise way to determine depreciation
• - for newer or special-purpose buildings (school, churches)
• - based on Economic Life

- periods during which it is expected to remain useful for its original intended purpose

• - based on the present value of the right to future income
• - assumes that the income generated by a property will determine the property’s value
• - for apartment buildings, office buildings, retail stores

• GIVEN
• - Gross Income
• - Vacancy Expenses
• - Net Operating Income (NOI)

1) Estimate the Property's Potential Gross Income based on Market studies

2) Effective Gross Income = Potential Gross Income - Vacancy and Collection Losses

3) NOI = Effective Gross Income - Annual Operating Expenses

• - Gross Rent Multiplier
•    - to purchase at 1-4 unit residential rental property
•    - based on Monthly Rental Income

GRM = Sales Price ÷ Monthly Gross Rent

• - Gross Income Multiplier
• - to purchase 5 or more units of rental property
• - based on Annual Income

GIM = Sales Price ÷ Annual Gross Income

Appraisal

Market value

Market Price

• Anticipation
•    - Basic principles of value

• Change
•    - Basic principles of value

• Competition
•    - Basic principles of value

• Conformity
•    - Basic principles of value

• Contribution
•    - Basic principles of value

• Increasing and Diminishing Returns
•    - Basic principles of value

Law Cost of Increasing Returns

Law of Diminishing Returns

• Plottage
•    - Basic principles of value

Assemblage

Regression

Progression

• Substitution
•    - Basic principles of value

Sales Comparison Approach

Cost Approach

Income Approach

Sales Comparison Approach

Depreciation

Depreciation for appraisal purpose

Depreciation for tax reporting purpose

Functional Obsolescence

External Obsolescence

Straight-Line Method

Straight-Line Method

Economic Life

Income Approach

Income Approach

Income Approach

GRM - Gross Rent Multiplier

GRM - Gross Rent Multiplier

GIM - Gross Income Multiplier

GIM - Gross Income Multiplier