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Real Estate Principles Tenth Edition

Real Estate Principles Tenth Edition. Real Estate: An Introduction to the Profession Tenth Edition. Chapter 18 Real Estate Appraisal. _________________________. Appraisal. An estimate of value. Three approaches to estimating value: Market – comparable sales data

james-estrada
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Real Estate Principles Tenth Edition

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  1. Real Estate PrinciplesTenthEdition Real Estate: An Introduction to the Profession Tenth Edition

  2. Chapter 18Real Estate Appraisal _________________________

  3. Appraisal • An estimate of value. • Three approaches to estimating value: • Market – comparable sales data • Cost – construction cost plus land value • Income – monetary returns of property capitalized

  4. Valuing a House Market Comparison Approach +$2,960 -$2,700 -$7,560

  5. Competitive Market Analysis

  6. Calculating Gross Rent Multiplier Building Sales Price Gross Annual Rents Gross Rent Multiplier No.1 $245,000 $34,900 = 7.02 No.2 $160,000 $22,988 = 6.96 No.3 $204,000 $29,352 = 6.95 No.4 $196,000 $27,762 = 7.06 As a Group: $805,000 $115,002 = 7.00

  7. Costs Approach to Value Step 1: Estimate land as vacant $ 30,000 Step 2: Estimate new constructioncost of similar building $120,000 Step 3: Less estimated depreciation -12,000 Step 4: Indicated value of building $108,000 Step 5: Appraised property value $138,000by the cost approach

  8. Square-foot Method of Cost Estimating

  9. Income Approach Variation by Direct Capitalization Income / Rate = Value $18,000 / 0.09 = $200,000

  10. Projected Annual Operating Statement (Pro Forma Statement) Operating expense ratio: $31,070 / $79,800 = 38.9%

  11. Direct Capitalization Using an Overall Rate Income Overall Rate = Value $45,400 0.09376 = $484,215

  12. cost recovery

  13. Overall Rates - 10-year Holding Period, 25-year Loan for 75% of the Purchase Price, 10% Investor Return

  14. Reconciliation Market Approach $180,000 x 75% = $135,000 Cost Approach $200,000 x 20% = $ 40,000 Income Approach $160,000 x 5% = $ 8,000 Final Indicated Value $183,000

  15. Types of Appraisals andReporting Options under USPAP Types of Appraisals • Complete appraisal • Limited appraisal Reporting Options • Self-contained appraisal report • Summary report • Restrictive report

  16. Formats of Appraisal Reports • Letter report • Form report • Narrative report • Review appraisals • Real estate analysis

  17. Appraiser License • Certified General Appraiser • Certified Residential Appraiser • State licensed appraiser • Provisional licensed real estate appraiser • Appraiser trainee

  18. Principles of Value • Principle of Anticipation • Principle of Substitution • Highest and best use of a property • Principle of competition • Principle of supply and demand • Principle of change • Principle of contribution • Principle of conformity

  19. Value • Market value • Assessed value • Insurance value • Loan value • Estate tax value • Plottage value • Rental value • Replacement value

  20. Markets • Buyer’s market – excess supply of housing for sale. • Seller’s market – demand exceeds supply.

  21. Professional Appraisal Societies • The American Institute of Real Estate Appraisers (AIREA) • MAI • SRA • Society of Real Estate Appraisers • NATIONAL Association of Independent Fee Appraisers • Farm Managers and Rural Appraisers • National Society of Real Estate Appraisers • American Society of Appraisers

  22. Appraisal Capitalize Comparables Cost approach Depreciation FIRREA Gross rent multiplier Highest and best use Income approach Market approach Market value Operating expenses Scheduled gross, Projected gross USPAP Key Terms

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