Basic Appraisal Principles, Basic Appraisal Concepts 2023

An appraisal is defined as (Dictionary of Real Estate Appraisal, 6th ed, 2015) The act or process of developing an opinion of value; an opinion of value. An appraisal must be numerically expressed as a specific amount, as a range of numbers, or as a relationship (e.g., not more than, more than, not less than, less than) to a specified amount. Characteristics of a good appraisal report Clear Concise Consistent Timely Accurate Well supported Clear exhibits Unbiased Pertinent Appropriate Assignment is defined as (USPAP definition) "a valuation service that is provided by an appraiser as a consequence of an agreement with a client." Client is defined as (USPAP definition) "The party or parties who engage, by employment or contract, an appraiser in a specific assignment." Comment: The client may be an individual, group, or entity, and may engage and communicate with the appraiser directly or through an agent. In certain situations, the client might request to not be identified in the appraisal report, and the appraiser may abide by the client's request and omit the client's identity from the report. However, in this situation, the appraiser must identify the client in the appraiser's workfile. Real Estate is defined as (The Dictionary of Real Estate Appraisal, 6th ed., 2015) 1. “An identified parcel or tract of land, including improvements, if any. (USPAP, ed.)" 2. "Land and all things that are a natural part of the land, e.g., trees and minerals, as well as things that are attached to the land by people, e.g., buildings and site improvements. All permanent building attachments such as plumbing, heating and cooling systems; electrical wiring; and built-in items like elevators or lifts are also a part of real estate. Real estate includes all attachments, both below and above the ground.(IVS)" Land is defined as "1. In law, the solid surface on the earth, as distinguished from water. 2. One of the four agents of production in economic theory." A somewhat longer and more explanatory definition of land appeared in the IVS Glossary of The Dictionary of Real Estate Appraisal, Fifth Edition (Appraisal Institute, 2010): "Valuation of land as if vacant, and of land and improvements to or on the land, is an economic concept. Whether vacant or improved, land is also referred to as real estate. The earth's surface, the space beneath which extends to the centre of the earth, and the space above which extends to the sky. The ownership of land and the rights attached to the ownership are subject to the laws of a particular State." Land Characteristics Unique Location, Immobility, Durability, Finite Supply, Unique Location Every parcel of land has its own unique location. Each differs in some aspect such as topography, access, subsoil, and orientation. Immobility This characteristic of immobility sets land apart from other economic assets. It is fixed in location and therefore a prisoner of its environment. It is particularly sensitive to its immediate surroundings. Durability Land is essentially durable and is classified as a long-lasting asset. It has a longer physical and economic life than many other assets. That is why it is possible to obtain 30-year mortgages. Finite Supply Another important characteristic of land is that there is a finite and limited supply. In many areas there is an increasing demand for land. If the supply is limited, that fact tends to drive prices upward. Subsurface rights are defined as "1. The rights to the use and profits of the underground portion of a designated property; usually refers to the right to extract coal, minerals, oil, gas, or other hydrocarbon substances as designated in the grant; may include a right of way over designated portions of the surface. 2. The right to construct and maintain tunnels, subways, subcellars, pipelines, sewers, etc." Air Rights are defined as "The right to undisturbed use and control of designated air space above a specific land area within stated elevations. Air rights may be acquired to construct a building above the land or building of another or to protect the light and air of an existing or proposed structure on an adjoining lot. Air rights do not always include development rights." Transferable Development Rights (TDR's) are defined as "A development right that cannot be used by the landowner, or that the owner chooses not to use, but can be conveyed to landowners in another location or leased for a period of years to then revert back to the original owner; TDRs are said to be transferred from a landowner in a sending district to the use of a landowner in a receiving district." Fixture is defined as "An article that was once personal property but has since been installed or attached to the land or building in a rather permanent manner so that it is regarded in law as part of the real estate." A fixture could be natural things such as trees and shrubbery which have been permanently planted, but generally fixtures are man-made things, such as fences or structures. To determine whether something is a fixture or not, the most common tests include: The method of attachment. How permanent is it? For example, was it attached by screws, nails, or just set in place? Can it be removed without doing substantial permanent damage? Will it leave behind just a few nail holes or a big gaping hole in the wall? The intent when it was attached. Was it meant to become a permanent part of the structure or was it meant to be a temporary item? Personal Property is defined as 1. The interests, benefits, and rights inherent in the ownership of tangible objects that are considered by the public as being personal; also called tangible personal property. 2. Identifiable tangible objects that are considered by the general public as being "personal" - for example, furnishings, artwork, antiques, gems and jewelry, collectibles, machinery and equipment; all tangible property that is not classified as real estate. (USPAP, ed.) Typically, personal property is not included in the appraisal of residential properties; particularly if the appraisal is for mortgage lending purposes. Mortgage lenders do not want to make 30-year loans on items like refrigerators or dryers, which typically have a shorter life than a house. If a lender did decide to loan on such items, it would be in the form of a chattel mortgage for maybe 3 to 5 years Appraisers may appraise personal property if they are knowledgeable and experienced in this area. (T/F) True -This is determined by the COMPETENCY RULE of USPAP. The appraisal of personal property is covered in STANDARDS 7 and 8 of USPAP. Trade Fixtures are defined as "Articles placed in or attached to rented buildings by a tenant to help carry out the trade or business of the tenant are generally regarded as trade fixtures. For example, a tenant's shelves used to display merchandise are trade fixtures and retain the character of personal property, as opposed to all other fixtures that were but are no longer personal property when they are attached to and become part of the real estate. Despite the consensus on the concept of trade fixtures in general, applicable law and custom govern when a specific item is a trade fixture in a particular assignment. Also called chattel fixture." Trade fixtures are found only in rented space and for use in non-residential (i.e., commercial or industrial) property. They are installed by the tenant and they may or may not remain after the expiration of the lease. That will depend on how the lease was written.