Real Property Valuation

• The ventilation system recycles air while removing odors and pollutants.

General Influencers of Real Property Value

• Physical
• Geographic
• Economic
• Social
• Governmental
• With the observed condition method, appraisers determine a structure's components loss in value due to depreciation as either curable or incurable.

Observed Condition

• Appraisers assess a structure's components loss in value due to depreciation as either curable or incurable.
• The cost approach may have potential drawbacks when used to determine the value of a residential property
• Appraisers find the net adjustment when using the sales comparison approach by adding up the positive and negative adjustments for a comparable property.
• Endangered species or wetlands are environmental concerns that can directly impact the site's appraisal value.
• The Lessor holds the leased fee interest.
• Find the HUD construction code tag on the exterior of a manufactured home.
• The mean, median, and mode are expected to be close to the same number when data are normally distributed.
• Reproduction cost estimates use an exact duplicate of the subject property, whereas replacement cost uses a similar property.
• Reproduction cost is the cost to construct an exact duplicate of the subject property at the current costs as of the appraisal date
• Replacement cost is the current cost to construct a building with the same usefulness as the subject building.
• Easements are often established by written agreement between the parties.
• Direct capitalization analyzes net operating income (NOI) for a single year. it is used when a property's income isn't expected to vary much over time.
• Appraiser independence requirements protect the appraiser, the lender, and the consumer.
• The appraiser trainee must perform appraisals under the supervision of an appraiser who has qualifications consistent with the type of property under appraisal.
• Appraisers generally use three approaches to value.
• Physical deterioration is a loss in value caused by wear and tear.
• A built-in sandbox will be marked as a fixture in the report of an appraiser identifying fixtures in the back yard.
• The Trustor is the person who makes the trust.
• With the gross income multiplier (GIM) valuation method, a property's sales price is divided by the gross income.
• Building residual technique and the land residual technique are two ways appraisers use to capitalize net operating income (NOI) into a value.
• The appraiser's opinion of market value is based on data, experience, judgement, and the state of the Market for the subject property.
• The four stages of the neighborhood life cycle are growth, equilibrium, decline, and rejuvenation.
• The income approach to appraisal is based on the anticipation value principle.
• Regression is when a lower-quality property is adjacent to a higher-quality property, it can diminish the value of the higher-quality property.
• It's okay to answer questions if an appraiser calls you after one of your listings has sold and asks you about the terms of the sale.
• A certified general real property appraiser is allowed to perform appraisals on any type of real estate.
• Yield capitalization is a process that estimates future income and then applies a discount rate in order to provide an investment's present value.
• An appraisal is an opinion of value.
• Personal property is everything that's not real property.
• An appraiser might weigh the sales comparison approach more heavily while reconciling the appraisal value of a vacant lot.
• A deed restriction can be placed on a single property, an entire subdivision, or a neighborhood.
• Hannah should base her decision of how to graphically present data on the type of graphic that will best convey the data.
• The unit for central air is most likely found right outside the home.
• Fee Simple is the most common form of property ownership and therefore the one on which most appraisals would be based.
• As part of completing an appraisal using the cost approach method, appraisers must complete the cost approach section of the URAR form.
• Radon is a colorless, odorless, radioactive gas that is released when uranium decays.
• Unpaid taxes become a lien against the property, making taxation an inherent burden on private ownership.
• A fee simple estate is one that conveys the broadest form of ownership.
• As the resident in a cooperative, her share of mortgage interest and real estate taxes will be deductible on her personal income tax returns.
• The restricted appraisal report and the appraisal report are the two report times permitted by the Uniform Standards of Professional Appraisal Practice.
• The US census Bureau is a good source of general data needed by appraisers.
• A sliding window consists of one or more panes that either move up and down or side to side in tracks.
• The allocation method uses a percentage of an improved property's total value to arrive at a market value for the land.
• Find a grid with quantitative information about the subject property alongside information about three comparable properties under the Sales Comparison approach section of the URAR.
• There is an inverse relationship between capitalization rate and value.
• Brass is durable, corrosion resistant, and can be used for hot-water distribution lines, but it doesn't last as long as copper piping.
• The appraiser may weigh one or two approaches more heavily than the others, as appropriate for the property type for the method used to reconcile the value found for a property from the three appraisal approaches.
• When building value is known, but the land value is unknown, the land residual technique can be used.
• Real estate, plus all of the interests, benefits, and rights included in ownership, is also known as real property.
• Real property rights include the right of enjoyment.
• Accrued depreciation is considered the most difficult part to estimate accurately regarding the cost approach equation.
• The appraiser selects the adjusted sales price of the property most like the subject to use as the indicated value.
• Maria, an appraiser performing an income-based appraisal, will use operating statement ratios to test the validity of the numbers used for income and expenses in the appraisal report.
• Equity REIT receives most of its revenue from the rental of their properties.

Appraisal Definitions

• Appraisal: An unbiased opinion of property value that’s based on researching a variety of factors, such as recent sales of comparable properties nearby.
• Comparative Market Analysis (CMA): An opinion of price arrived at by evaluating the property, its location within the market, its condition, competing properties for sale, recent sales, and current buying tastes and trends.
• Broker Price Opinion (BPO): An estimate of price in case the lender must take over the property and sell it to an investor or on the market.

Appraisal Principles and Market Value

• DUST: Four significant factors that influence value are D = Demand, U = Utility, S = Scarcity, T = Transferability
• While mortgage value or market value is the most common in a residential transaction, other types of value include investment, going-concern, insurance, salvage, liquidation, value in use, and tax assessment value.

Influencers of Value

• Geographic
• Physical
• Economic
• Social
• Governmental

Appraiser Licensure and Legislation

• Title XI of FIRREA oversees appraiser qualifications and standards.
• The Uniform Standards of Professional Appraisal Practice (USPAP) provides real estate appraisers with a systematic process and guidelines for professional behavior.

Review of Real Estate Math

• To figure the cost per front foot, take the price the property sold for and divide it by the frontage measurement.
• When calculating the front foot price, make sure you multiple the front footage by the value per front foot.
• When given two dimensions for a piece of land, such as 400 feet x 500 feet, the first number is the frontage or width of the property.
• To determine the linear footage, add the lengths of the four sides together.
• Area of a rectangle = length x width.
• Area of a square = side x side.
• Use this formula when interest is not calculated for a full year: principal (total) x rate x time (in months) = interest (part).
• Use this formula when interest is calculated for a full year: total x rate = interest.
• To figure out the monthly interest, use this formula: interest amount = (loan balance x interest rate) / (number of payments annually).

Real Estate Statistics

• Statistics can help you communicate information about facts and the relationships between them, but they can also be used to mislead.
• The mean, median, and mode are the three measures of central tendency used in statistics.
• Information presented graphically can use a table, a line graph, a pie chart, a bar graph, a histogram, or an infographic.

Appraising Real Property Value 

• An appraisal is an estimate of value that is for a specific purpose, party, and property as of a specific date.
• Real property ownership includes the rights of enjoyment, disposition, possession, control, and exclusion, among other rights.
• Encroachments are structures or objects illegally built on another’s land.
• Most real property appraisals are made on the basis of fee simple ownership.
• The sticks in the bundle of rights are air, water, mineral, profit, mortgage, fixtures, crops, possession and enjoyment, exclusion, and disposition.
• Police power is the government's authority at all levels to ensure the health, safety, and welfare of its citizens, which includes the control of public land use.
• Legal description methods include lot and block (which is preferred by courts), metes and bounds, and the rectangular government survey system.

Construction and Property Value

• Construction codes apply at the local, state, and federal level, but are generally enforced by local or county authorities.
• National standards for measuring square footage only include areas where the ceiling height is seven feet or taller, as well as all finished living areas (e.g., not the garage).
• Most houses fall into one of the following types: One-story, one-and-a-half story, two-story, split-level, split-entry, and factory-built.
• The quality of finishes can have a significant impact on an appraisal. Unfinished improvements, outdated finishes, and lead-based paint can impact an appraisal negatively.
• Local building codes dictate the rules about plumbing systems’ structure and what materials may go into building them.
• The National Electric Code sets national standards for installation and service of electrical systems.
• Green regulations and certifications are mandated at the federal level.

The USPAP Appraisal Process

• The three primary approaches to value used by appraisers are the sales comparison, cost, and income approach.
• Cost to replace or reproduce the structure (the improvements to the land) minus the depreciation on the structure plus the value of the land equals the value of the property.
• When using the sales comparison approach, appraisers consider elements in a specific order: financing terms and cash equivalency, conditions of sale, market.
• The replacement cost approach bases value on the cost to build a functionally equivalent property.
• To determine cap rate, divide annual income by value (or sales price) (I / V = R).
• To determine value using the cap rate formula, divide annual income by the cap rate (I / R = V).
• To determine income using the cap rate formula, multiply the cap rate by the value (R x V = I).

Gathering Data

• Real estate professionals use broker’s price opinions (BP0s), automated valuation models (AVMs), and comparative market analyses (CMAs) to estimate properties’ listing prices.
• Stating the problem includes the purpose and use of the appraisal, the interest to be appraised, the type of value to be estimated, and the date of the value estimate.
• Appraisers gather and analyze general data on social, economic, governmental, and environmental trends, as well as specific data on the subject and comparable properties.
• The URAR contains data on the neighborhood, site, and improvements and data about three comparable properties used in the sales comparison approach.
• Neighborhoods can be classified by the four stages of the neighborhood life cycle: growth, equilibrium (or stability), decline, and rejuvenation (or rehabilitation).
• In the Site section of the Uniform Residential Appraisal Report (URAR), appraisers record data about the measurements of the land, the view, zoning, utilities, highest and best use, and any adverse site conditions.
• In the Improvements section of the URAR, appraisers record a general description of the building and its foundation, and exterior and interior features and their physical depreciation.
• The sales comparison approach can be summed up in this formula: Sales price of comparable ± Adjustments = Indicated value of the subject property.

Site Valuation

• An appraiser considers legal permissibility, physical possibility, financial feasibility, and economic profitability when performing a highest and best use analysis. 
• The important features of a site include its size, location within the block, utilities, improvements, soil composition, and whether it’s in a special hazard zone, like a flood or earthquake zone. 
• The presence of endangered species and wetlands are both environmental concerns that can impact the use of land and the appraisal value, and should be noted on the appraisal report. 
• Environmental concerns such as underground storage tanks, groundwater contamination, waste disposal sites, and other similar factors can impact a property’s appraisal value. 
• The sales comparison method of appraisal compares sales data of comparable properties and adjusts for differences to arrive at a market value for the subject property. 
• The allocation method is sometimes used when the value for the land portion of an improved property must be determined. It provides a broad, rule-of-thumb indicator. 
• The subdivision development method is used to provide a value for each lot in a residential subdivision. 
• The ground rent capitalization method converts the amount of yearly income the land will produce into a value using a capitalization rate.

The Sales Comparison Approach to Appraisal

• Appraisers gather and analyze quantitative data about comparable properties, adjust for differences, and estimate the fair market value of the subject property when using the sales comparison approach.
• The URAR follows UAD specifications to describe the subject property in terms of features that affect the market value of a residential property.
• Differences in date of sale, location, physical features, and terms of sale can be adjusted by adding or subtracting an amount from the comparable sale price.
• Appraisers first adjust for factors that affect overall property value, such as financing, time, and location, before adjusting for differences in features.
• When using the sales comparison approach, appraisers add or subtract the net adjustment (the sum of adjustments for a property) from the sale price of a comparable to get an adjusted sale price.
• The appraiser completes the analysis in the sales comparison approach by reconciling the adjusted sales prices of the comparable properties to indicate the value of the subject property.
• The sales comparison approach depends on sufficient amounts of accurate information about recent transactions of comparable properties. Without this data, this approach is not reliable.

The Cost Approach to Appraisal

• The cost approach is most often used with newly constructed properties, unique properties, and special purpose use properties.
• The cost approach measures value as a cost of production, which includes land acquisition and construction costs.
• Appraisers will often use a cost handbook, such as Marshall and Swift, to verify current costs. They may also base their estimate on what local contractors are charging.
• Reproduction/replacement cost – Accrued depreciation + Site value = Property value
• The four methods appraisers can use to find a structure’s reproduction cost are the index method, the square-foot method, the unit-in-place method, and the quantity survey method.
• The formula for the index method is: Present index ÷ Index at time of construction x Original cost = Present cost.
• The formula for the square-foot method is: (Gross living area x Cost per square foot) + Cost of the non-living areas + Cost of improvements = Reproduction cost new.
• The three types of costs included in a quantity survey method calculation are direct, indirect, and entrepreneurial profit.
• A simple formula that can be used to express the quantity survey method is: Direct costs + Indirect costs + Entrepreneurial profit = Total reproduction cost new.
• The three primary categories of depreciation are physical deterioration, functional obsolescence, and external obsolescence.
• The four measures of time that an appraiser should keep in mind when estimating depreciation are economic life, physical life, effective age, and remaining economic life.
• The most common methods appraisers use to measure depreciation are the age-life method, the observed condition method, the capitalization value method, and the market extraction method.
• The formula for the age-life method is: Effective age ÷ Total economic life = Accrued depreciation.

Definitions

• Reproduction cost: The cost to construct a subject property’s exact duplicate at current costs (as of the appraisal date).
• Replacement cost: The current cost to construct a building with the same usefulness as the subject building.
• Depreciation: A loss in value for any reason.
• Economic or useful life: The period of time for which a structure can be used for the purpose for which it was originally intended.

The Income Approach to Appraisal

• Gross rent multiplier, gross income multiplier, direct capitalization, and yield capitalization are all methods of using the income approach to appraising property.
• Rental income for residential properties is usually calculated as annual dollars per room.
• Rental income for commercial properties is usually calculated as annual dollars per square foot.
• Operating expenses used in an income-based appraisal are classified as fixed or variable.
• The operating expense ratio divides operating expenses by effective gross income, and is used to evaluate if the cost of operating the income property is typical for its type and market.
• The net income ratio is used to evaluate the efficiency of the property’s operation. When this ratio is added to the operating expense ratio, it should equal one.
• The breakeven ratio adds operating expenses with debt service, then divides that sum by the effective gross income. This ratio shows the level of occupancy required to make a profit.
• Gross rent multiplier is found by dividing the sales price of comparable properties by the gross annual or monthly rent.
• The gross income multiplier is found by dividing the sale price of a property by its estimated gross annual income. 

Definitions

• Income approach: Estimates value by capitalizing expected income, and is based on the principle of anticipation.
• Net operating income: The amount of income after operating expenses are deducted from effective gross income.

Direct and Yield Capitalization

• Direct capitalization and yield capitalization are two different methods of income capitalization and both are based on the principal of anticipated income.
• Direct capitalization looks at one year, while yield capitalization looks at several.  
• A capitalization rate is the expected rate of return on an investment. It can be calculated using the formula of NOI ÷ V = R (Net Operating Income ÷ Value = Rate).
• Investments with a high capitalization rate are considered high risk and are valued lower.
• Investments with a low capitalization rate are considered low risk and are valued higher.
• The direct capitalization formula is net operating income ÷ capitalization rate = value, or NOI ÷ R = V.
• Annuity tables, such as the Inwood annuity table, provide a factor that’s multiplied by the investor’s desired level of annual income to calculate present value.
• The cost of capital is an investor’s minimum required rate of return.
• Appraisers and other business valuation specialists use the building residual technique and the land residual technique to capitalize NOI into a value.

Appraising Partial Interests in Real Estate

• Partial interest properties include condominiums, properties in a PUD, time shares, and cooperatives.
• Forms of legal co-ownership are tenants in common and joint tenants.
• The landlord holds a leased fee interest, while the tenant’s interest is a leasehold estate.
• Factors that can affect the value of a lease interest are the stability of the tenant, the length of the lease, provisions of the lease, the residual land and building value, and the relationship between contract rent and market rent.
• Lease value is divided according to the parties’ interests as attributed in the lease.

Reconciliation and the Appraisal Report

• Reconciliation is the step in the appraisal process where appraisers consider the values from the applicable approaches and decide on a final value estimate.
• When appraisers reconcile their appraisal value, they may weigh one or more values (e.g., sales comparison, income, or cost) more than others, then determine a weighted average of the three.
• Appraisal report forms standardize the appraisal reporting process, so that important facts and conclusions are included to support the appraiser’s opinion of the appraisal value.
• In a narrative appraisal report, the appraiser leads the reader from the definition of the appraisal problem through the descriptive data and reasoning process to a specific conclusion.