Real Estate Appraisal Introduction

Study Notes

Appraisal is an opinion of value, relying significantly on the appraiser's judgment and expertise
Appraisal practice includes appraisal and appraisal review
The history of appraisal profession began in 1929 with the first professional standards for appraisals, grew in response to appraisal requirements from the FHA, VA, and Fannie Mae, and was further shaped by the savings and loan crisis in the 1980s

The purpose of an appraisal is to estimate a type of value
The intended use of an appraisal is the reason the client wants to know the information
Appraisers may be staff appraisers for a business or government agency, or independent fee appraisers

Depository institutions are chartered by federal or state government
Primary market: Lenders make loans to home buyers
Secondary market: Loans are sold as investments, often after being packaged as mortgage-backed securities by Fannie Mae or Freddie Mac

Real estate is defined as an identified parcel or tract of land, including improvements, if any (USPAP)
Fixtures are man-made attachments to real property, which were once personal property but are now attached to or connected with real property in such a way that they have become part of real property
Four common tests to distinguish a fixture from personal property are:
- Method of attachment
- Adaptation of the item
- Intention of the parties
- Relationship of the parties

Real property is defined in Uniform Standards of Professional Appraisal Practice as the interests, benefits, and rights inherent in the ownership of real estate
Real estate refers to land itself (plus improvements)
A complete bundle of rights in real property includes:
- Right to possess
- Right to use
- Right to enjoy
- Right to encumber
- Right to will
- Right to sell or transfer

Two main categories of interests in land are:
- Estate: Real property interest that includes possession
- Encumbrance: Real property interest that doesn't include possession
Freehold estates include title to property and consist of:
- Fee simple estates
- Life estates

Encumbrances are real property interests that don't include possession
Types of encumbrances include:
- Financial encumbrances
- Nonfinancial encumbrances

Government may affect private ownership through:
- Eminent domain
- Taxation
- Police power
Eminent domain is the power to take private property for public use, with just compensation paid to the property owner
Common taxes that affect real estate are general property taxes and special assessments