A method of valuing a property based on

$Monetary

 returns it can be expected to produce.

• Cash price a willing buyer and seller would agree upon.
•  given reasonable exposure to market place
• full information as to the personal uses of property
• No undue compulsion to act

Estimated rent that a

 FULLY OCCUPIED PROPERTY

can be expected to produce on annual basis.

Market approach

Income Approach

Cost approach

highest price a property can bring:

1. Payment made in cash
2. Property is exposed on open market reasonble time
3. Buyer/seller fully informed to market conditions/uses
4. Neither under abnormal pressure to conclude transaction
5. Seller is able to convey title

(Market Approach)

What is Adjusted market price?

Market Approach

What is Correlation?

Subdivided lots for commericial industrial or apartments usually appraised and sold on square foot basis.

Unsubdivided and rural valued sold by acre.

4-3-2-1

Rule

Depth  adjustment that appraisers use when valuing vacant lots

States land at back is worth less than land at front.

(variation of comparision)

By looking at similar home that has sold recently plus those listed that did not sell or expired.

Divide sale price  of property by its gross annual rent.

EX: if building grosses 100k and sold for $700k

Gross Multiplier is 7

Gross Rent Multipliers

What is Weakness

Explain Cost Approach

For Properties where market approach inapproriate.

1. Estimate value of land           
   (valued as vacant using market comparison approach)
2. Cost of constructing similar building @todays cost
3. Calculation of wear and tear
4. Depreciation is subtracted from todays construction cost to give the current value.
5. Add thei to land value.

What are the 3 kinds of depreciation?

(Cost Approach)

1. Physical Deterioration
2. Functional Obsolescence
3. Economic  Obsolescence

Results from outmoded equipment, Faulty or outdated design, inadequate structual facilities,overadequate facilities.
Can be divided in to curable and incurable.

Curable=Fixed reasonable cost.

Incurable is you have to live with it

After calculating current construction cost

of the subject improvments and

estimating  amount  of depreciation,

next step is to

subtract the amt of depreciation

 from

 current construction cost--> to get the depreciated value of improvments. This is added to value of land. This total is the value of property by cost approach.

Income Approach

Useful for $Investors$

What is Income approach

Market Approach useful for home sales.

Cost Approach Useful for someone planning to build.

Income Approach considers the

 $$$$$$$$$

 return a property can be expected to produce and convert that into a value of the property should sell for.

Income approach Calculations

Income diveded over what?

Income

             _________  =Value

Rate

Income divided by rate equals VALUE!

PROJECTED OPERATING STATEMENT

(Income $ Approach)

Estimated  rents that property can be expected to produce is called what term?

(Income approach)

Projected gross

or

Scheduled Gross

What are some steps n Income Approach?

• Look at /create Projected Operating Statement.
• Itemize anticipated Operating Expenses
• To be continued

(Note Improvements not classified as EXPENSIVES *improvments increase usefulness which increases rent and value$)

What are Reserves for Replacement

(Income Approach)

Established for Items that do not require spending of cash for each Year.

Lobby Furniture/furniture etc..

Income Approach

What is Net Operating Income?

When operating expense total is subtracted from effective gross income.

The balance remaining is the

Net Operating Expense

Income Approach

What is Operating Expense Ratio?

Obtained by dividing the total operating expenses  by the effective gross income.

*The resulting ratio makes a good yardstick  against similar properties

Income Approach

Explain Steps

Look at income/expenses for property 3-5 years for a Projected operating Statement which starts off showing projected gross.
 (2)Itemize anticipated expenses

(3) Operating  expense total is subtracted from effective gross income to get net operating income. Then operating expense ratio is calculated by dividing total oper. expenses by effective gross income,and final step is to capitalize the net operating income

income/rate=Value

ASSEMBLAGE

LIKE ASSEMBLINT THOSE PARCELS TOGETHER LOL....

Is what a structure is worth if has to be removed and taken elsewhere, in whole or dismantled for parts.

(usually low cuz labor COSTS)

When ever supply and demans are unbalanced because of excess supply

is a seller or buyers market.

Hint excess supply?

BUYER MARKET

Buyer can negotiate prices n terms pimp like LOL

When demand exceed supply

Sellers have the upperhand>

Demand for the stuff(LOL)

Scarcity

Utility

Transferable

Characteristic of value
Explain

Demand*utility*Scarcity*transferable

Demand=NEED OR DESIRE(sounds freaky) coupled with purchase power to fill it...

Utility is ability of a good or service to fill that need

Scarcity means there must be a short supply relative to demand---less stuff HIGHER VALUE!!!!!

Transferable a good or serivce must be transferable to ahev value to anyone  other than person possessing it.

Principles of Anticipation

What a person will pay for a property depends on the expected benefits from the property in future.

Investor anticipatin his Paper-LOL

Home owner anticipating getting sheltor, pride of ownership....

Principle of Competion recognizes that where substantial Paper/$

.

(Applied to Real Estate)

Principle of Supply n Demand

Ability of people to pay for land coupled with _____________

Principle of Diminishing Marginal Returns

AKA
PRINCIPLE OF CONTRIBUTION

*Relationship between added ____($HINT)

and the value it returns.

COST

(It tells us to invest dollars whenever they return more than $1 of value and to stop when each dollar invested returns less than dolla in value) DUh..who wants to lose?

Principle of Conformity

Hint Value Homogeneity Hood

Maximum value is realizes there is a reasonable degree of homogeneity in a neighborhood.

A $200k house would be out of place in a hood of $90k houses

ASSESSED VALUE

ESTATE TAX VALUE

(hint: Deceased person's?)

Estate Tax Value

is the value that the FEDS  and

State Taxation authorities established  for a deceased persons property that must be paid.

Insurance  Value

Hint :replace property

Insurance value is concerned with the cost of replacing damaged property

Differs from market in two ways

1. Value of land is not included (only structures are destructable)

2. Amount of coverage us based on replacement cost of structure...

States  maximum value of a property in the market place  tend to set by the cost of purchasing an equally desirable substitute  property provided no cost delay is encountered in making the substitution

Substitution set an upper limit on price..

APPRAISAL FOUNDATION

A private foundation that....

(hint)standards and certifications)

1. Purpose is to establish Uniform appraisal standards
2. Set aapropriate criteria for the certification of qualified appraisers
3. Maintain appropriate systems for certification of appraisers

Appraisal Foundation 2

Established 2 sub-comittees

Hint:Qualifications vs Standards

1. Appraisal Qualification Board
(Establish Criteria)

2. Appraisal Standards Board

(Sets the Standards)

The Main foundations aim is to spread the qualifications to states goverment entities etc

Appraisal Foundation-Federal Regulation

Congress enacted what act of 1989

 Note: 1st time in History of establish standards

FIRREA

FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 89

Appraisal (Federal)

Congress create the subcomitte to do what?

Created the Appraisals Subcomittee

of the Federal Financial Institution exam counsil to establish standards.

This Subcomittee looks exclusively to

Appraisal Foundation for establishing standards under Firrea

(4 Both appraiser qualification/appraiser standards)

Appraisal-Firrea

Created mandatory requirements for real estate standards.
These requirements are known as:

Hint: USP...

UNIFORM STANDARDS OF PROFFESSINAL APPRAISAL PRATICE

U S P A P !

This act  requires appraiser undersatnd n correctly use these standards

Uniform Standards of Professional Appraisal Pratice

USPAP

Specializes requirements for appraisers

Analysis of market data be within one year for 1-4 family residential homes

Within 3 year for all other property

Appraisers Standards

Appraisal must conform to standards by USPAP

(unless priciples of safe and sound banking require compliance with stricter standards)

Be written (duh) and contain suffiecient information analysis to support the institute decision to make loan.

Analize/report appropriate deductions/discount for proposed construction

Be based on the difinition of market value as defined under law

Appraisal must be done by state licensed or regulated in accordance to appraisal regulations

Appraisals are required for all real estate transactions..(keep people HONEST)

What are some of the conditions for appraisal
Hint: $ amounts

• 1,000,000.00 or more transactions
• Non residential transactions of $250,000.00 or more
• Complex residential transactions of $250,000.00 or more

EXCEPTIONS: UNDER 250,000.00 OR LESS

lIEN ON REAL ESTATE WHICH HAS BEEN TAKEN BY COLLATERAL IN AN ABUNDANCE OF CAUTION, A TRANSACTION SECURED BY A LIEN ON REAL ESATE THAT HAS BEEN TAKEN FOR PURPOSES OTHER THAN A REAL ESTATE'S VALUE AND CERTAIN BUSINESS LOANS

Appraisal Uspap

set forth some standards for appraisal report.....

1.  Identify/describe real estate bieng appraised
   You could appraise wrong prop and miss ^%$!! up!
2. State the real property interest being appraised
3. State the purpose  and intended use of the appriasal
   (no shady shit)
4. Define the value to be estimated
5. State the effective date of the appraisal and report
6. State the extent of the process of collecting/confirming/and reporting data
7. State all assumptions and limiting condtions that affect the analyses, opinions and conclusions
8. Describe the information considered, appraisal procedures followed and reasonings that support the analyses/opinions/conclusions
9. Describe  appraisers opinion to highest n best use if neccessary
10. Explain/support the exclusions  of any of the usual valuation approaches
11. Describe any additional information that may be appropriate to show complaiance
12. Include signed certification

Formats of Appraisal reports

There 3 Traditional formats

Letter

Form

Narrative Report(Longest most formal)

Real Estate Analysis

Hint: info not related to estimating value

An analysis is the act or process of providing info/recommendations/conclusions on diversified problems in real estate other than estimating value
can include a number of different analysis:cash flow/investment/market

Has about five guidelines though see other card

Real Estate Analysis

5 guidelines

1. Clearly identify client objective
2. Define the problem and purpose and intended use for analysis
3. Collect, verify and reconcile any data to be included
4. Apply appropriate tools of analysis to data collected
5. Base all projections of analysis on reasonably clear and appropriate evidence

Certified General Real estate Appraiser

Certified Residential Real estate Appraiser

State licensed Real Estate Appraiser

Provisional License Real Esate Appraiser

Appraiser Trainee

Texas Appraiser Licensing and Certification Board

Talcb

Created to recommend education,experience and continuing education requirements for certification

Governor appoints 8 members 4 must be appraisers and 4 public members

9th will be the executive secretary of Texas Veteran land board

Talcb is an independent subdivision of

TEXAS REAL ESATE COMMISSION

TEXAS REAL ESTATE COMMISSION

Responded to Appraisal Foundation by passing rules govering appraisals/prop analysis to be made by all licensees n make Texas in compliance of new federal rules:

There are 2 exceptions

The new regulation doesnt apply to:

Statement of opinion of value of real property given by licensee in connection with seeking obtaining a listing contract

Price comparisoin of similar (CMA)properties provided as part of other brokerage business for purpose of determining a listing, selling or rental price for a specific property.

So a licensee can provide info and estimate value without regulation if a written statement  says this is an opinion of value and not considered an appraisal.....

Square foot

acre

Front Foot

Projected gross

scheduled gross

1.  DIMINISHING MARGINAL RETURNS
2. CONTRIBUTION