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ANALYSIS IN ACTION

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  1. ANALYSIS IN ACTION

  2. Page 3 Welcome and Course Description Welcome to Analysis in Action, presented by McKissock LP. This course concentrates on analysis – the backbone of all appraisals. We will start with an extensive investigation of market analysis, complete with USPAP and regulatory guidelines, and examples. We will study market analysis for the URAR and the 1004 MC Addendum and look at some charting tools. Then we will concentrate on sales analysis; again with USPAP and regulatory requirements. Then we will focus on comparable sales selection, qualitative, and statistical analysis.

  3. Page 5 Seminar Objectives Discuss requirements for market analysis by USPAP and various clients Complete the market analysis sections of the 1004 and 1004 MC report forms Employ analytical tools for better market analysis Explain practical applications Identify requirements for sales analysis by USPAP and various clients Complete the sales analysis sections of the 1004 report form Employ analytical tools for better sales analysis

  4. Seminar Agenda USPAP requirements for market analysis Fannie Mae and Freddie Mac requirements for market analysis FHA and VA requirements for market analysis ERC requirements for market analysis Market analysis in the 1004 and 1004MC forms Market analysis for private appraisals Excel charting functions

  5. Seminar Agenda USPAP requirements for sales analysis Fannie Mae and Freddie Mac requirements for sales analysis FHA and VA requirements for sales analysis ERC requirements for sales analysis Selecting comparable sales Qualitative analysis of sales Statistical analysis of sales

  6. Announcements Break times and lunch Restroom locations Smoking areas Be considerate of those near you Please silence your cell phone, pagers, etc. Attendance sheet Certificates and evaluation forms

  7. Page 6 Definitions • Analysis • The separation of an intellectual or material whole into its constituent parts for individual study • The study of such constituent parts and their interrelationships in making up a whole • A spoken or written presentation of such study • Source: American Heritage Dictionary

  8. Page 6 Synonyms • Analysis • Study • Reasoning • Opinion • Judgment • Interpretation • Evaluation • Source: Collins Thesaurus of the English Language

  9. Page 6 Definitions • Analyze • to study or determine the nature and relationship of the parts of by analysis • Source: Merriam Webster Dictionary • to scrutinize information or data with the intention of identifying patterns, trends or anomalies to solve existing problems • Source: www.cchra.ccahrd.ca

  10. Analysis is Required from appraisers What sets us apart Your best friend The genesis of value opinion What it’s all about

  11. Be An Analyzer Bunny

  12. Page 7 Definitions Market A set of arrangements in which buyers and sellers are brought together through the price mechanism; the aggregate of possible buyers and sellers and the transactions between them. Source: Dictionary of Real Estate Appraisal, 5th Edition

  13. Page 7 Definitions Real Estate Market Buyers and sellers of particular real estate and the transactions that occur among them. Source: Dictionary of Real Estate Appraisal, 5th Edition

  14. Page 7 Definitions Seller’s Market An active market in which the sellers of available properties can obtain higher prices than those obtainable in the immediately preceding period; a market in which a few available properties are demanded at prevailing prices by many users and potential users. Source: Dictionary of Real Estate Appraisal, 5th Edition

  15. Page 7 Definitions Buyer’s Market A market in which buyers have the advantage; exists when market prices are relatively low due to an oversupply of property or reduced buyer demand. Source: Dictionary of Real Estate Appraisal, 5th Edition

  16. Page 7 Definitions Depressed Market A market in which a drop in demand is accompanied by a relative oversupply and a decline in prices. Source: Dictionary of Real Estate Appraisal, 5th Edition

  17. Page 7 Definitions Market Analysis A process for examining the demand for and supply of a property type and the geographic market area for that property type. Source: Dictionary of Real Estate Appraisal, 5th Edition

  18. Page 8 Definitions Market Area The area associated with a subject property that contains its direct competition. Source: Dictionary of Real Estate Appraisal, 5th Edition

  19. Page 8 Definitions Market Area Delineation The process of identifying the market area associated with the subject property. Source: Dictionary of Real Estate Appraisal, 5th Edition

  20. Page 8 Definitions • Neighborhood • A group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises. • A developed residential super pad within a master planned community usually having a distinguishing name and entrance. • Source: Dictionary of Real Estate Appraisal, 5th Edition

  21. Page 8 Definitions Neighborhood Analysis The objective analysis of observable and/or quantifiable data indicating discernible patterns of urban growth, structure, and change that may detract from or enhance property values; focuses on four sets of considerations that influence value: social, economic, governmental, and environmental factors. Source: Dictionary of Real Estate Appraisal, 5th Edition

  22. Page 10 USPAP STANDARD 4 - REAL PROPERTY APPRAISAL CONSULTING, DEVELOPMENT In developing a real property appraisal consulting assignment, an appraiser must identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete the research and analyses necessary to produce credible results. Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  23. Page 10 USPAP • Definition of Appraisal Consulting from the 2012-2013 USPAP: • APPRAISAL CONSULTING: the act or process of developing an analysis, recommendation, or opinion to solve a problem, where an opinion of value is a component of the analysis leading to the assignment results. • Comment: An appraisal consulting assignment involves an opinion of value but does not have an appraisal or an appraisal review as its primary purpose. • Source: 2012-2013 Uniform Standards of Professional Appraisal Practice • Note: The ASB has proposed the retirement of STANDARDS 4 and 5 for the 2014-2015 USPAP. A similar proposal was made for the 2012-2013 USPAP, but it was not adopted, and STANDARDS 4 and 5 were retained.

  24. Page 11 USPAP • SCOPE OF WORK RULE • Comment: Scope of work includes, but is not limited to: • the extent to which the property is identified; • the extent to which tangible property is inspected; • the type and extent of data researched; and • the type and extent of analyses applied to arrive at opinions or conclusions. • Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  25. Page 11 USPAP Standards Rule 1-2 (c) (iv) if the opinion of value is to be based on non-market financing or financing with unusual conditions or incentives, the terms of such financing must be clearly identified and the appraiser’s opinion of their contributions to or negative influence on value must be developed by analysis of relevant market data; Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  26. Page 11 USPAP Standards Rule 1-3 (a) identify and analyze the effect on use and value of existing land use regulations, reasonably probable modifications of such land use regulations, economic supply and demand, the physical adaptability of the real estate, and market area trends Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  27. Page 11 USPAP Standards Rule 1- 4 In developing a real property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results. Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  28. Page 11 USPAP Standards Rule 1- 4(a) When a sales comparison approach is necessary for credible assignment results, an appraiser must analyze such comparable sales data as are available to indicate a value conclusion Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  29. Page 12 USPAP • Standards Rule 1- 4(b) • When a cost approach is necessary for credible assignment results, an appraiser must: • develop an opinion of site value by an appropriate appraisal method or technique • analyze such comparable cost data as are available to estimate the cost new of the improvements (if any); and • analyze such comparable data as are available to estimate the difference between the cost new and the present worth of the improvements (accrued depreciation). • Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  30. Page 12 USPAP • Standards Rule 1- 4(c) • When an income approach is necessary for credible assignment results, an appraiser must: • analyze such comparable rental data as are available and/or the potential earnings capacity of the property to estimate the gross income potential of the property; • analyze such comparable operating expense data as are available to estimate the operating expenses of the property; • analyze such comparable data as are available to estimate rates of capitalization and/or rates of discount; • Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  31. Page 12 USPAP Standards Rule 1- 4(e) When analyzing the assemblage of the various estates or component parts of a property, an appraiser must analyze the effect on value, if any, of the assemblage. An appraiser must refrain from valuing the whole solely by adding together the individual values of the various estates or component parts. Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  32. Page 13 USPAP Standards Rule 1- 4(f) When analyzing anticipated public or private improvements, located on or off the site, an appraiser must analyze the effect on value, if any, of such anticipated improvements to the extent they are reflected in market actions Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  33. Page 13 USPAP Standards Rule 1- 4(g) When personal property, trade fixtures, or intangible items are included in the appraisal, the appraiser must analyze the effect on value of such non-real property items. Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  34. Page 13 USPAP • Standards Rule 1- 5 • When the value opinion to be developed is market value, an appraiser must, if such information is available to the appraiser in the normal course of business: • analyze all agreements of sale, options, and listings of the subject property current as of the effective date of the appraisal; and • analyze all sales of the subject property that occurred within the three (3) years prior to the effective date of the appraisal. • Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  35. Page 13 USPAP Is this a proper analysis? “The subject property sold 11 months ago for $212,500.” No – that is a statement of fact. It is not an analysis. That would be a violation of USPAP. Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  36. Page 13 USPAP • Standards Rule 1- 6 • In developing a real property appraisal, an appraiser must: • reconcile the quality and quantity of data available and analyzed within the approaches used; and • (b) reconcile the applicability and relevance of the approaches, methods and techniques used to arrive at the value conclusion(s). • Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  37. Page 14 Fannie Mae B4-1.2-05, Requirements for the Appraisal Report (04/01/2009) Lenders must ensure that the appraisal report reflects a thorough investigation and analysis of the market value and provides the rationale for the appraiser’s opinion of the market value. Source: Fannie Mae Single Family 2011 Selling Guide

  38. Page 14 Fannie Mae B4-1.2-02, Objective and Unbiased Appraisals (04/01/2009) The lender must ensure that appraiser comments regarding unfavorable conditions—such as the existence of an adverse environmental or economic factor—also discuss how the condition affects the value and/or marketability of the property being appraised and explain how the condition was taken into consideration in the valuation process. In such cases, the appraiser’s analysis must reflect and include comparable sales that are similarly affected, whenever possible. Source: Fannie Mae Single Family 2011 Selling Guide

  39. Page 14 Fannie Mae B4-1.4-04, Appraisal Report Review: Trend of Neighborhood Property Values, Demand/Supply, and Marketing Time (10/30/2009) The appraiser’s analysis of a property must take into consideration all factors that affect value. Because Fannie Mae purchases mortgages in all markets, this is particularly important for market areas that are experiencing significant fluctuations in property values including submarkets for particular types of housing within the market area. Source: Fannie Mae Single Family 2011 Selling Guide

  40. Page 8 Definitions Submarket A division of a total market that reflects the preferences of a particular set of buyers and sellers, e.g., fast food restaurants as a submarket of the overall restaurant market. Source: Dictionary of Real Estate Appraisal, 5th Edition

  41. Page 15 Residential Market Analysis - On the URAR Form

  42. Page 15 URAR Neighborhood Section

  43. Page 16 URAR Housing Trends

  44. Page 9 Definitions Marketing Time An opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value level during the period immediately after the effective date of an appraisal. Marketing time differs from exposure time, which is always presumed to precede the effective date of an appraisal. Source: Dictionary of Real Estate Appraisal, 5th Edition

  45. Page 16 URAR Housing Trends

  46. Page 16 Purpose of Analysis The appraiser is to take that information and analyze it to determine if adjustments need to be made in the sales comparison grid, to reflect changes in market conditions since the date of sale of a comparable property.

  47. Page 9 Definitions Market Conditions An element of comparison in the sales comparison approach; comparable properties can be adjusted for differences in the points in the real estate cycle at which the transactions occur. Sometimes called a time adjustment because the differences in dates of sale are often compared, although that usage can be misleading. Source: Dictionary of Real Estate Appraisal, 5th Edition

  48. Page 16 USPAP Standards Rule 1-3 (a) Comment: An appraiser must avoid making an unsupported assumption or premise about market area trends, effective age, and remaining life. Source: 2012-2013 Uniform Standards of Professional Appraisal Practice

  49. Page 17 1004MC

  50. Page 17 1004 MC Instructions The appraiser must use the information required on this form as the basis for his or her conclusions, and must provide support for those conclusions, regarding housing trends and overall market conditions as reported in the Neighborhood section of the appraisal report form.