THE FUNDAMENTALS OF REAL ESTATE APPRAISAL

Understanding the Variance Between Price and Value

THE CHASM BETWEEN PRICE AND VALUE

THE PUSH FOR PRICE AS VALUE THE PROCESS…IN THEORY

Though sometimes subtle and sometimes not, the influence of lenders, investors and developers overshadows the reporting of market evidence.

• Mortgage Broker/Relationship Manager

• Lender’s Chief Appraiser

Borower

• The Property Contact (Seller Representative)

• Myriad of Market Information

Engaged Appraiser

• Internal Review• Bank Review

Appraisal Report

Preparation

WHAT IS PRICE

Improved Sale Data

Lease Data

Land Sale Data

WHAT IS VALUE

Overwhelming Evidence

Irrational Exuberance

ALL THOSE SUBTLE FORCESThe appraiser begins the analysis the moment the first conversation is held regarding the property. If the engaging party has some evidence of what a “credible” conclusion should be, that may come across in the initial conversation and color the appraiser’s attitude toward the property.

The property contact generally (not always) represents the seller who has a clear agenda. Regardless of any direction from the lender; the appraiser will hear that the “Price is Right”.

Possibly the lender’s relationship manager will call the appraiser. Though already warned against this conversation, the appraiser hears that this is a “Good Deal” and it MUST get done by a date certain to close.

The Conundrum Look at all the data? What is the cost to replace? When were the data

transacted…negotiated? Purpose of the lessee; business or real

estate? Purpose of the acquisition? In the end…there is no

conundrum…there must only be a CREDIBLE analysis!

NARROWING THE GAP

Price Value

THE END USER OF THE APPRAISAL

Clarity Enforcement Over Sight Credible Review

THE APPRAISER’S RESPONSIBILITY

•Clarity•Conform

Understand

•Confirm Data

•Relevance

Due Diligence •Analysis

•Credible

Review

SKILL BASED ON:• Training•Education•Work environment•Firm’s training environment•Continuing education•Firm’s collegiality•Who pays?•Who gains

Perception based on art: Comparative analysis Discernment Colaberation NOT Collusion Relationship building Communication Listening Self awareness Knowing what you don’t know

EVOLUTION OF STABILITY

•Market awareness•Understanding influence•Underlying factors in a trade•Communication of data with understanding Push

To…

Balance

THE “RIGHT” VALUE IS:

SUPPORTED BY A CREDIBLE PROCESS EXPRESSED BY A CREDIBLE REPORT

Performance in line with expectations of a good client

Influenced by clearly understood and vetted data

Actively engaged with and interactive with transactors

Actively engaged with and drawing down macro and micro data

Communicating the whole of the analysis credibly

No surprises Clear warnings No contradictions Meaningful letter of

transmittal Meaningful addenda

A CREDIBLE ANALYSIS

From

To T

he

Solu

tion

TheProblem