Chapter 16

Comparative Market Analysis

1) May not be referred to an appraisal 2) May be performed by a real estate licensee for a fee 3) May use sales price of recent sales and list prices of expired listings Not required to be prepared in conformance with USPQP

Reconstructed Operating Statement; exclusions

An appraiser is estimating the net operating income of a commercial-investment property. The following items are not deducted: 1) debt service 2) depreciation 3) federal income taxes 4) capital improvements. A reverse allowance for replacement is classified as an operating expense.

Overimprovement

An improvement which is not the highest and best use for the site on which it is placed by reason of excess size or cost. Typically when the cost exceeds the value contribution of the improvement.

Incurable functional obsolescence

An outdated electrical service such as, a house not wired for the voltage requirement of large appliances. This is classified as incurable because the cost to cure the deficiency would likely be greater than the contribution to value.

Incurable External Obsolescence

Incurable depreciation caused by factors not on the subject property, such as environmental, social, or economic factors (road dust, traffic noise, hazard to children playing in the yard) etc

Effective Age

Is based on the condition and utility of the building. Effective age is based on the appraisers judgement. It is not a market-derived fact.

Highest & Best Use (HABU)

Physically possible and legally permissible use of land that will result in the highest value of real property. There are two concepts: 1) highest and best use "as vacant" 2) as improved

Investment Value

Suppose an equity investor requires an 18% after tax return on investment. An appraiser would estimate the investment value of the property.

Replacement Cost

The estimated cost to construct an existing building using similar but not identical materials. Reproduction cost is the estimated cost to construct an exact replica of the building being appraised using identical materials and construction standards.

Federally Related Transaction

The sale price for a house is $450k. An appraisal to support a VA guaranteed loan application must be performed by a state certified appraiser. The transaction price is over 400k and VA is a federal agency.

Principle of Regression

The value of a superior property will be worth less because of the presence of lower-valued properties nearby.

Valuation Services

With respect to appraisal, Broker Price Opinion (BPO) and Comparative Market Analysis (CMA): 1) An appraisal must conform to the requirements of USPAP 2) A broker may not perform an appraisal for a federally related transaction if price is over $250k 3) BPO & CMA are not an appraisal 4) Brokers & Sales Associate may perform a BPO or CMA for a fee.