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© 2012 Cengage Learning
© 2012 Cengage Learning
Real Estate AppraisalChapter 17
© 2012 Cengage Learning
In This Chapter
You will study the three approaches to estimating value.
© 2012 Cengage Learning
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
© 2012 Cengage Learning
Valuing a House Market Comparison Approach
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Competitive Market Analysis
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Building Sales Price GrossAnnualRents
Gross RentMultiplier
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
As a Group:
$196,000
$805,000
$27,762
$115,002
= 7.06
= 7.00
Calculating Gross Rent Multiplier
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Step 1: Estimate land as vacant $ 30,000
Step 2: Estimate new construction cost 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 $138,000 by the cost approach
Costs Approach to Value
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Square-foot Method of Cost Estimating
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Income / Rate = Value
$18,000 / 0.09 = $200,000
Income ApproachVariation by Direct Capitalization
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Projected Annual Operating Statement (Pro Forma Statement)
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IncomeOverall Rate
= Value
$45,4000.09376
= $200,000
Direct Capitalization Using an Overall Rate
© 2012 Cengage Learning
© 2012 Cengage Learning
Overall Rates - 10-year Holding Period, 25-year Loan for 75% of the Purchase Price, 10% Investor Return
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Appraisal Regulations
The Appraisal Foundation Federal Regulation Developing the Appraisal Appraisal Standards – USPAP Appraisals Required Reporting Standards
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1. Letter report
2. Form report
3. Narrative report
4. Review appraisals
5. Real Estate Analysis
Formats of Appraisal Reports
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Appraiser License
Certified General Appraiser Certified Residential Appraiser State licensed appraiser Provisional licensed real estate appraiser Appraiser trainee
© 2012 Cengage Learning
Texas appraiser licensing and certification board requirements
© 2012 Cengage Learning
Texas appraiser licensing and certification board requirements
© 2012 Cengage Learning
Texas Regulations
TALCB – www.talcb.state.tx.us If you have not followed USPAP guidelines
then include this statement: THIS IS AN OPINION OF VALUE OR
COMPARATIVE MARKET ANALYSIS AND SHOULD NOT BE CONSIDERED AN APPRAISAL.
BROKER’S PRICE OPINION COMPARATIVE MARKET ANALYSIS
© 2012 Cengage Learning
HIGHEST AND BEST USE
That use that will give the property its greatest current value!
© 2012 Cengage Learning
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
Principles of Value
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Value
Market value Assessed value Insurance value Loan value Estate tax value Plottage value Rental value Replacement value
© 2012 Cengage Learning
Markets Buyer’s market – excess supply of housing
for sale. Seller’s market – demand exceeds supply.
© 2012 Cengage Learning
Key Terms 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
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