BASIC APPRAISAL PROCEDURES FINAL EXAM QUESTIONS
WITH COMPLETE SOLUTION
8 Steps in the Valuation Process
1) Define the problem
2) Determine scope of work
3) Gather, record and verify the data
4) Determine the highest and best use
5) Estimate the land value
6) Estimate value by each of the 3 approaches (if applicable)
7) Reconcile the estimated values into the final opinion of value
8) Report the final opinion of value
Defining the Problem: 6 Sub-steps within
-Identification and location of the real estate
-Identification of the property rights
-Definition of value
-Purpose and intended use of the appraisal
-Effective date of the opinion of value
-Any special limiting conditions
Real Property
*the interests, benefits and rights inherent in the ownership of real estate
-partial estates: life estate, easement & encroachment
-specialized form of ownership: condo, coop, PUD, & timeshare
Effective Date of the Value Opinion
-two dates are essential to an appraisal report
-the effective date of value can be a past (retrospective), current or future (prospective)
date, in many cases it's the date the appraiser inspects the property; the decision will be
made in concert with the client's needs
-the date of the report is the date you sign and issue the final report
Any Special Limiting Conditions
-two common types are: extraordinary assumption & hypothetical condition
Extraordinary Assumption
*an assumption, directly related to a specific assignment, as of the effective date of the
assignment results, which if found to be false, could alter the appraiser's opinions or
conclusions
-it presumes as fact otherwise uncertain information about physical, legal or economic
characteristics of the subject property; or about conditions external to the property such
as market conditions or trends; or about the integrity of data used in an analysis
Hypothetical Condition
*a condition, directly related to a specific assignment, which is contrary to what is known
by the appraiser to exist on the effective date of the assignment results, but is used for
the purpose of analysis
-it is contrary to known facts about physical, legal or economic characteristics of the
subject property; or about conditions external to the property, such as market conditions
,or trends; or about the integrity of data used in an analysis
-this type of appraisal could be significantly misleading to intended users if the use of
the hypothetical condition were not properly disclosed
Scope of Work
*the type and extent of research and analyses in an assignment
-understanding which analyses, methods and techniques are necessary and what data
are necessary to correctly complete the analyses is an integral part of the scope-of-work
decision
-the Scope of Work Rule was added to the 2006 edition of USPAP
-applies to appraisal reviews assignments as well as appraisals
-scope of work includes:
-the extent to which the property is identified
-the extent to which tangible property is inspected
-the type and extent of data researched
-the type and extent of analyses applied to arrive at
opinions or conclusions
-solely the responsibility of the appraiser; ensures credible assignment results,
consistent with the expectations of intended users & is consistent with what the
appraiser's peers' actions would be in a similar assignment
-in a Restricted Appraisal Report the scope of work need only be stated
Gather, Record & Verify the data
-need to record the data in a workfile
-the workfile must exist prior to issuance of the report
-must keep 5 years after preparation or 2 years after deposition, whichever period
expires last
-workfile includes:
-name of client & any other intended users
-true copies of all written reports, on any media
-summaries of oral reports or testimony
-all other data, info & documentation to support
the appraiser's opinions or conclusions
-a workfile in support of a Restricted Appraisal
Report must be sufficient for the appraiser to
produce an Appraisal Report
-must be made available by the appraiser when required by a state appraiser regulatory
agency or due process of law
Determine Highest & Best Use
-must be legally permissible, physically possible, financially feasible & maximally
productive
-may be only one use for the property if vacant and another for a property as it is
presently improved
Estimate Value by the Applicable Approaches to Value
-3 common approaches to value: cost approach, sales comparison approach & income
capitalization approach
-don't always use each approach in every appraisal but we must consider the
applicability of each approach to the particular appraisal problem at hand
,General Data
*Items of information on value influences that derive from social, economic, government
and environmental forces and originate outside the property being appraised.
-tends to influence all properties in an area equally
-usually it is the closer and more proximate influences that exert the greatest pressure
Specific Data
*Details about the property being appraised, comparable sales and rental properties
and relevant local market characteristics
-it is more direct and applies specifically to the subject of your appraisal assignment
9 Sources of General Data
1) government
2) trade associations
3) utility companies
4) school districts
5) universities
6) departments of transportation
7) planning boards
8) multiple listing services
9) chambers of commerce
8 Sources of Specific Data
1) deeds
2) location maps
3) tax maps
4) flood maps
5) assessor's records
6) title companies
7) zoning ordinances
8) multiple listing services
Deed
-prime source of specific data about a property that would include: legal description,
owners of record, easements, deed restrictions & chain of title
-deeds can be obtained from the owners, lender, county courthouse or title company
Land versus Site
*land: the earth's surface, both land and water, and anything that is attached by nature
or human hands
*site: land that is improved so that it is ready to be used for a specific purpose
-land is raw; site is improved
Separate Site Valuations
-most residential appraising, we are valuing site rather than land
-total property can be viewed as a combination of 2 elements: the value of the site & the
value of any building improvements on the site
-Include:
1)cost approach
2)assessments and taxation
3)condemnation appraisals
, 4)certain income capitalization methods
5)highest and best use analysis
Brownfields
*an industrial or commercial site that is abandoned or underused because it suffers from
real or perceived continuing contamination
-about 500,000 brownfields nationwide
-petroleum is the most common contaminant (200,000)
-January 2002 President Bush signed H.R. 2869, which provides liability insurance for
those who buy brownfield sites
-EPA will control sites that cross state lines or that pose an imminent threat to public
health or the environment
6 Site Valuation Methods
-ALL six methods are quantitative in nature & require specific value judgments to be
made based on market evidence
1) Sales Comparison-comparison with recent sales
2) Extraction-subtracts estimated improvement value to arrive at land value
3) Allocation-uses land-to-value ratios based on improved sale comparables
4) Subdivision Development-subtracts estimated development costs from discounted
sale proceeds
5) Land Residual-divides up and capitalizes the income between land and
improvements
6) Ground Rent Capitalization-capitalizes income from leased land
Sales Comparison Approach
*The process of deriving a value indication for the subject property by comparing market
information for similar properties with the property being appraised
-most commonly used approach for valuing sites is the sales comparison method
-the most accurate and most understandable & should be utilized whenever possible
-must have an adequate market data (quantity & quality of comparable sales)
-Traditional minimum number of comparable sales is three
Sales Comparison Adjustments
-adjustments should be derived from the market (location & market conditions)
-we only need to adjust for items that are significant (differences a typical purchaser
would be able to recognize and then translate into dollar preferences)
-possible adjustments: traffic, size, shape, topo, exposure, usable area, corner location,
floodplain, utilities, soil conditions, zoning & restrictions
Units of Comparison
-if comparable sales are not sufficiently similar so as to allow for direct comparison, then
we use common units of comparison:
1)price per square foot (urban, small lots)
2)price per acre
3)price per front foot (waterfront & commercial properties)
4)price per lot (small difference in lot sizes 1.55acre v 2.37)
5)price per buildable unit (subdivision or multi-units)
6)price per animal unit (ranch or farm, measured by productivity, land will support
________)
Extraction Method (Abstraction)
WITH COMPLETE SOLUTION
8 Steps in the Valuation Process
1) Define the problem
2) Determine scope of work
3) Gather, record and verify the data
4) Determine the highest and best use
5) Estimate the land value
6) Estimate value by each of the 3 approaches (if applicable)
7) Reconcile the estimated values into the final opinion of value
8) Report the final opinion of value
Defining the Problem: 6 Sub-steps within
-Identification and location of the real estate
-Identification of the property rights
-Definition of value
-Purpose and intended use of the appraisal
-Effective date of the opinion of value
-Any special limiting conditions
Real Property
*the interests, benefits and rights inherent in the ownership of real estate
-partial estates: life estate, easement & encroachment
-specialized form of ownership: condo, coop, PUD, & timeshare
Effective Date of the Value Opinion
-two dates are essential to an appraisal report
-the effective date of value can be a past (retrospective), current or future (prospective)
date, in many cases it's the date the appraiser inspects the property; the decision will be
made in concert with the client's needs
-the date of the report is the date you sign and issue the final report
Any Special Limiting Conditions
-two common types are: extraordinary assumption & hypothetical condition
Extraordinary Assumption
*an assumption, directly related to a specific assignment, as of the effective date of the
assignment results, which if found to be false, could alter the appraiser's opinions or
conclusions
-it presumes as fact otherwise uncertain information about physical, legal or economic
characteristics of the subject property; or about conditions external to the property such
as market conditions or trends; or about the integrity of data used in an analysis
Hypothetical Condition
*a condition, directly related to a specific assignment, which is contrary to what is known
by the appraiser to exist on the effective date of the assignment results, but is used for
the purpose of analysis
-it is contrary to known facts about physical, legal or economic characteristics of the
subject property; or about conditions external to the property, such as market conditions
,or trends; or about the integrity of data used in an analysis
-this type of appraisal could be significantly misleading to intended users if the use of
the hypothetical condition were not properly disclosed
Scope of Work
*the type and extent of research and analyses in an assignment
-understanding which analyses, methods and techniques are necessary and what data
are necessary to correctly complete the analyses is an integral part of the scope-of-work
decision
-the Scope of Work Rule was added to the 2006 edition of USPAP
-applies to appraisal reviews assignments as well as appraisals
-scope of work includes:
-the extent to which the property is identified
-the extent to which tangible property is inspected
-the type and extent of data researched
-the type and extent of analyses applied to arrive at
opinions or conclusions
-solely the responsibility of the appraiser; ensures credible assignment results,
consistent with the expectations of intended users & is consistent with what the
appraiser's peers' actions would be in a similar assignment
-in a Restricted Appraisal Report the scope of work need only be stated
Gather, Record & Verify the data
-need to record the data in a workfile
-the workfile must exist prior to issuance of the report
-must keep 5 years after preparation or 2 years after deposition, whichever period
expires last
-workfile includes:
-name of client & any other intended users
-true copies of all written reports, on any media
-summaries of oral reports or testimony
-all other data, info & documentation to support
the appraiser's opinions or conclusions
-a workfile in support of a Restricted Appraisal
Report must be sufficient for the appraiser to
produce an Appraisal Report
-must be made available by the appraiser when required by a state appraiser regulatory
agency or due process of law
Determine Highest & Best Use
-must be legally permissible, physically possible, financially feasible & maximally
productive
-may be only one use for the property if vacant and another for a property as it is
presently improved
Estimate Value by the Applicable Approaches to Value
-3 common approaches to value: cost approach, sales comparison approach & income
capitalization approach
-don't always use each approach in every appraisal but we must consider the
applicability of each approach to the particular appraisal problem at hand
,General Data
*Items of information on value influences that derive from social, economic, government
and environmental forces and originate outside the property being appraised.
-tends to influence all properties in an area equally
-usually it is the closer and more proximate influences that exert the greatest pressure
Specific Data
*Details about the property being appraised, comparable sales and rental properties
and relevant local market characteristics
-it is more direct and applies specifically to the subject of your appraisal assignment
9 Sources of General Data
1) government
2) trade associations
3) utility companies
4) school districts
5) universities
6) departments of transportation
7) planning boards
8) multiple listing services
9) chambers of commerce
8 Sources of Specific Data
1) deeds
2) location maps
3) tax maps
4) flood maps
5) assessor's records
6) title companies
7) zoning ordinances
8) multiple listing services
Deed
-prime source of specific data about a property that would include: legal description,
owners of record, easements, deed restrictions & chain of title
-deeds can be obtained from the owners, lender, county courthouse or title company
Land versus Site
*land: the earth's surface, both land and water, and anything that is attached by nature
or human hands
*site: land that is improved so that it is ready to be used for a specific purpose
-land is raw; site is improved
Separate Site Valuations
-most residential appraising, we are valuing site rather than land
-total property can be viewed as a combination of 2 elements: the value of the site & the
value of any building improvements on the site
-Include:
1)cost approach
2)assessments and taxation
3)condemnation appraisals
, 4)certain income capitalization methods
5)highest and best use analysis
Brownfields
*an industrial or commercial site that is abandoned or underused because it suffers from
real or perceived continuing contamination
-about 500,000 brownfields nationwide
-petroleum is the most common contaminant (200,000)
-January 2002 President Bush signed H.R. 2869, which provides liability insurance for
those who buy brownfield sites
-EPA will control sites that cross state lines or that pose an imminent threat to public
health or the environment
6 Site Valuation Methods
-ALL six methods are quantitative in nature & require specific value judgments to be
made based on market evidence
1) Sales Comparison-comparison with recent sales
2) Extraction-subtracts estimated improvement value to arrive at land value
3) Allocation-uses land-to-value ratios based on improved sale comparables
4) Subdivision Development-subtracts estimated development costs from discounted
sale proceeds
5) Land Residual-divides up and capitalizes the income between land and
improvements
6) Ground Rent Capitalization-capitalizes income from leased land
Sales Comparison Approach
*The process of deriving a value indication for the subject property by comparing market
information for similar properties with the property being appraised
-most commonly used approach for valuing sites is the sales comparison method
-the most accurate and most understandable & should be utilized whenever possible
-must have an adequate market data (quantity & quality of comparable sales)
-Traditional minimum number of comparable sales is three
Sales Comparison Adjustments
-adjustments should be derived from the market (location & market conditions)
-we only need to adjust for items that are significant (differences a typical purchaser
would be able to recognize and then translate into dollar preferences)
-possible adjustments: traffic, size, shape, topo, exposure, usable area, corner location,
floodplain, utilities, soil conditions, zoning & restrictions
Units of Comparison
-if comparable sales are not sufficiently similar so as to allow for direct comparison, then
we use common units of comparison:
1)price per square foot (urban, small lots)
2)price per acre
3)price per front foot (waterfront & commercial properties)
4)price per lot (small difference in lot sizes 1.55acre v 2.37)
5)price per buildable unit (subdivision or multi-units)
6)price per animal unit (ranch or farm, measured by productivity, land will support
________)
Extraction Method (Abstraction)
