Introduction to Valuation Process

The perceived value of real estate based on market participants' expectations of future economic conditions. It reflects the current market sentiment.

The date on which the appraiser forms their opinion of the property's value. It may differ from the date on the appraisal report document.

Economic shifts impact market values. Sudden market changes can drastically affect a property's worth.

An appraisal that estimates a property's value as of a past date. Often needed for tax purposes, insurance claims, and legal cases.

An appraisal that predicts a property's value at a future date. Helpful for project planning and investment decisions.

The physical, legal, and economic characteristics of a property that are relevant to its valuation. This includes location, size, zoning, and any encumbrances.

Assumptions and conditions that the appraiser considers during the valuation process. These may affect the final value opinion.

The scope of the appraisal assignment. It defines the specific property, valuation date, and any assumptions or conditions that the appraiser must consider.

The appraiser must understand the assignment's context and implications before accepting it. This includes considering the client, their motivations, and any potential conflicts of interest.

The appraiser must clearly identify the client and any other individuals or organizations who will use the appraisal report.

The intended use of an appraisal refers to how the appraisal will be applied or used by the client.

The appraisal's intended use guides the appraiser in determining the scope and depth of the analysis needed for the assignment.

The opinion of value can be used for various real estate decisions, such as determining a sale price, loan amount, tax basis, lease terms, or just compensation for expropriation.

The appraiser and client must agree on the intended use of the appraisal report and who owns the final estimate.

The purpose of an appraisal is usually to develop an opinion of a specific type of value, such as market value, use value, or investment value.

An opinion of value is considered valid only for the specific date specified in the appraisal report because real estate values are constantly changing.

Situations where an appraiser must consider scenarios that differ from typical market conditions or the property's current state, often due to insufficient data, unique property features, or hypothetical events.

Conditions that don't reflect reality but are used by the appraiser for analysis purposes. These are hypothetical scenarios for understanding potential market value.

The amount and type of data researched and the analytical methods employed in an appraisal assignment.

The appraiser determines the appropriate scope of work based on the client's needs and the specific problem being addressed.

Clear disclosure of the scope of work is mandatory in the appraisal report, including aspects that were excluded from the analysis.

The appraiser may detail the time spent and the areas explored in gathering data, especially if limited information was available.

While the scope of work can be explained throughout the report, it's ideal to have a dedicated section explicitly outlining it for clarity.

The first step in the appraisal process, where the appraiser identifies the problem to be solved and determines the scope of the work. This includes specifying the type of value being sought, the intended use of the appraisal, and the effective date of the appraisal.

The process of gathering information and analyzing data related to the subject property and the market in which it is located. This helps the appraiser understand the property's characteristics, the market forces that affect its value, and the competitive landscape.

Information that applies to the broader market area where the subject property is located. This includes data on economic trends, demographics, government regulations, and environmental factors.

Information that is specific to the subject property and comparable properties in the market. This includes legal descriptions, physical characteristics, location details, costs, income and expenses, and sales data.

Data related to the available properties in the market, including inventories of existing and proposed properties, vacancy rates, and absorption rates.

Data related to the demand for properties in the market, including population growth, income levels, employment trends, and survey data about potential property users.

The combination of supply and demand data helps to create a picture of the future market for the subject property, allowing appraisers to estimate future demand for the property's present or prospective use.

The amount and type of data collected for an appraisal depends on the chosen valuation approaches and the defined scope of work. Often, more than one approach is used to arrive at a single value estimate.

A method of valuing real estate by considering the relationship between a property's income and its present value, using factors like capitalization rate or income multiplier.

A method of valuing real estate by analyzing the relationship between a property's income stream over multiple years, including its future reversionary value, and applying a discount rate.

A commonly used technique in yield capitalization, where the present value of future income streams is calculated by discounting them to the present value using a discount rate.

The final step in the appraisal process where the value indications from different appraisal methods are considered and reconciled into a single value or range of values.

The appraiser's final opinion of the property's value, expressed as a single number, a range of values, or in relation to a benchmark amount.

A written or oral presentation of the appraiser's findings and conclusions from the valuation process, delivered to the client.

The tangible outcome of the appraisal process, containing the appraiser's analysis, methods, and conclusions.

The appraiser's experience and judgment play a crucial role in the valuation process, as they guide the analysis and interpretation of data.

A valuation method that estimates the value of a property based on the cost of replacing it with a new, similar property, minus depreciation, plus the value of the land.

It involves comparing the subject property to similar properties that have been recently sold or are currently on the market.

This method assesses the present value of future income a property is expected to generate, such as rental income.

The estimated value of land based on market comparables.

The cost of constructing a new building that is identical to the existing property.

The cost of constructing a new building that is functionally equivalent to the existing property, but may use modern materials and designs.