What is appraisal?
"...a supportable, defensible, estimate of [the most probable selling price]"
What should you sell for?
What should you buy for?
What is the cost vs. the value of an appraisal
The role of real estate brokers in appraisal
When may a formal appraisal not be needed in a buy/sell transaction?
In a very active market with many sales of very similar properties, the value of the possible increased accuracy may not exceed the cost of the appraisal. (eg. lot sales in a large popular subdivision)
Whenever the value in use of a specific site so exceeds the asking price of the property that any delay in its purchase could be much more costly than the value of any information disclosed by the appraisal. (eg. A developer has assembled all but a small residential parcel in the middle of the planned office park development.)
The economic role of value and value estimation
Improves information flow to the market
Improves market efficiency
Types of decisions requiring appraisal
Highest and best use
Timing of construction
Types of Value
Taxable (assessed) value
Value in use
Value in exchange
Definition of Market Value
“The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, assuming that the buyer and seller are both acting prudently and knowledgeably and that the price is not affected by undue stimulus.”
Implicit in the definition:
The sale is of a specified date and the passing of title from the seller to the buyer is under the following conditions:
Buyer and seller are typically motivated
Both parties are well informed and acting in what they consider their best interests
A reasonable time is allowed for exposure to the open market
Payment is made in cash or comparable to cash
The price represents a nomal consideration for the property sold, unaffected by special or creative financing or sales concessions
Estimation vs. Prediction
Value not absolute
Value expects future transactions
Requisites of Market Value
Value vs. cost and price
The Appraisal Process
Definition of the problem
Data selection and collection
Highest and Best Use Analysis
Land value estimate
Application of the appropriate approaches to value
Reconciliation of value indications and final estimate
Reporting of defined value
Approaches to Value Estimation
Income capitalization approach
Based upon the theory that a knowledgeable purchaser would pay no more for a property than the cost of building an acceptable substitute.
Plus Improvement value
Based upon the theory that a knowledgeable purchaser would pay no more for a property than the cost of acquiring an acceptable substitute.
Time of sale
Conditions of sale
Based upon the theory that a knowledgeable purchaser would pay no more for a property than the present value of the anticipated future benefits.
Estimation of income
Estimation of multipliers
Value = Income
$10,500/.09 = $116,667
Appraisal Organizations and Regulation (See Appendix A)
MAI, SRA (Appraisal Institute)
ASA (American Society of Appraisers)