What are the Three Approaches to Value?
In the Cost approach, value is estimated as the current cost of reproducing or replacing the improvements, minus the loss in value from depreciation, plus land value.
In the Sales approach, value is indicated by recent sales of comparable properties in the market.
In the Income Capitalization approach, value is indicated by a property’s earning power, based on the capitalization of income.
What is Market Value?
What does the term Highest and Best Use mean?
According to 6th Edition of the The Dictionary of Real Estate Appraisal, highest and best use is defined as: "the reasonably probable use of property that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity".
What is a Hypothetical Condition?
A condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.
What is an Extraordinary Assumption?
An assignment-specific assumption as of the effective date regarding uncertain information used in an analysis which, if found to be false, could alter the appraiser’s opinions or conclusions.
What is a Leasehold Interest?
The right held by the lessee to use and occupy real estate for a stated term and under the conditions specified in the lease.
What is a Leased Fee Interest?
The ownership interest held by the lessor, which includes the right to the contract rent specified in the lease plus the reversionary right when the lease expires.
What is an easement?
An easement is an interest in real property that transfers use, but not ownership, of a portion of an owner's property.
Real Estate Appraisal
What is an Appraisal?
An appraisal is the act or process of developing and opinion of value.
What is the role of the Appraiser?
The role of the appraiser is to provide objective, impartial and unbiased opinions about the value of real property — providing assistance to those who own, manage, sell, invest in and/or lend money on the security of real estate.
What services do Appraisers provide?
Business / Going Concern Valuations
Condemnation / Eminent domain
Litigation Support Services
Market Feasibility Studies
Reuse and Highest and Best Use Studies
What qualifications must an Appraiser have?
At minimum, all states require appraisers to be state licensed or certified in order to provide appraisals to federally regulated lenders.
Elements of an Appraisal Assignment
Who is the Client?
The client is the person who engages the appraiser. The client can be one person, one entity, or a number of people or entities acting together.
Who is the Intended User?
An intended user is a person or entity who the appraiser intends will use the results of the appraisal for some purpose.
What does the term Intended Use mean?
The intended use is the appraiser’s intent regarding how the report is to be used.
What is the Effective Date of the opinion of value?
The appraiser’s opinions and conclusions relate to a specific point in time. Given the client’s need and nature of the assignment, the appraiser must identify the exact date the value opinion would be valid.
What is a Letter of Transmittal?
A Letter of Transmittal formally presents the appraisal report to the client. It should be drafted in proper business style and be as brief as the character and nature of the assignment permit.
Appraisal Organizations & Standards
What is The Appraisal Foundation?
What is the Appraiser Qualifications Board?
Under the provisions of Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the Appraiser Qualifications Board (AQB) establishes the Real Property Appraiser Qualification Criteria, or the minimum education, experience, and examination requirements for real property appraisers to obtain a state certification. Twice a year, the AQB issues Q&As on the Criteria to be used as guidance for state regulatory agencies and the public. The AQB issues Exposure Drafts on proposed changes to the Criteria and obtains feedback at public meetings throughout the year in various regions of the country.
What is the Appraisal Standards Board?
Under the provisions of Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the Appraisal Standards Board (ASB) is responsible for writing, amending, and interpreting the Uniform Standards of Professional Appraisal Practice (USPAP). The ASB issues Exposure Drafts on proposed changes to USPAP and obtains feedback at public meetings throughout the year in various regions of the country. Additionally, the ASB occasionally issues USPAP Q&As and participates in speaking engagements on request.
What is the Appraisal Institute?
The Appraisal Institute is a global professional association of real estate appraisers, with more than 18,000 professionals in nearly 50 countries throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide.
What is USPAP?
The Uniform Standards of Professional Appraisal Practice (USPAP) is the generally recognized ethical and performance standards for the appraisal profession in the United States. USPAP was adopted by Congress in 1989, and contains standards for all types of appraisal services, including real estate, personal property, business and mass appraisal. Compliance is required for state-licensed and state-certified appraisers involved in federally-related real estate transactions. USPAP is updated every two years so that appraisers have the information they need to deliver unbiased and thoughtful opinions of value.
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Appraisal Institute. (2013) The Appraisal of Real Estate (14th ed.). Chicago, Illinois: Author.
Appraisal Institute. (2015) The Dictionary of Real Estate Appraisal (6th ed.). Chicago, Illinois: Author.