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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
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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
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© 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
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Texas appraiser licensing and certification board requirements
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Texas appraiser licensing and certification board requirements
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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
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HIGHEST AND BEST USE
That use that will give the property its greatest current value!
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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
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Markets Buyer’s market – excess supply of housing
for sale. Seller’s market – demand exceeds supply.
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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
