Chapter 14- Real estate appraisals

Appraisal Process Steps

- state the purpose of the appraisal - collect and verify information about the property - estimate the value using all three approaches - reconcile the estimated value. - prepare a report

substitution

An appraisal principle that states that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution. For example: two homes were for sale on the same street, the house with the lowest asking price would be purchased first

Appraisal

An estimate of the current value of the property. -Every property is diffrent -The apparser must remain impartial -The final value is not abuslute.

law of diminishing returns

At the point where additional improvements produce no proportionate increase in income or value

Lenders/ brokers cannot do what with an apparser?

Bribe

Cost

Capital overlay for land, laybor, materials, and profits.

Market Value vs Cost

Cost and market value can be the same but often when the improvements on the property are newest and the bets use of the land. Examples: There are two homes on the same street but one home is on a busy street and one home is on a quite side of the street. They're identical homes. The value of one might be more then other becuase of the area, but the cost is the same- idenetical housing. Demand of homes are higher then the supply of homes in a given neighborhood. People are choosing to pay more for a home then build there own. Market value is up and cost is down.

To have value in the real estate market property must have these economic characteristics

Demand (Effective demand)- The need or desire for possession is ownership backed by financial means to satisfy that need. Utility- The capability to satisfy human needs and desires. Scarcity-finite supply (limited supply) Transferbilty- relative ease in which ownership rights are transferred from one person to another.

Competition

Excess profits seems to attract competition.

Contribution

In that situation, it refers to the contribution made by a particular feature or component to the overall value of the whole property.

Externality

Influences outside a property may have a positive or negative effect on its value. The government can affect this, but also decorative features on the outside of your house.

The law of increasing returns

Law that applies as long as money being spent on improvements produces an increase in income or value.

Change

No physical or economic condition remains constant.

Conformity

The maximum value is realized if the use of land conforms to existing neighborhood standards. -A large home in a rather small neighborhood would loose value first and vice versa.

Highest and best use

The most probable use to which a property is suited that will result in its "highest value" The use of property found to be (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive. A parking lot in a busy downtown area may not maximize the land's profitability to the same ability as an office building.

Market price

The price the property actually sells for. The market price can be above or below the market value.

Anticipation

The principle holds that value can increase of decrease in anticipation of some feature benefit or detriment affecting the property. For examplem value of a house may be affected by rumors that an adjacent property may converted to commerical use in future

Assemblage

The process of merging two separately owned lots under one owner

Supply and demand

The value of a property will increase if the supply decreases and the demand either increases or remains constant- and vice versa. The last lot would have a higher value if the demand is high, rather then the first lot.

Market value

the most probable price a property should bring- not the avrg. price, highest price, or lowest price. Estimated price based on analysis of comparable sale and other pertinent market data.

Plottage value

value of combining adjoining parcels into one larger parcel.