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1.
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An Appraisal is:
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Estimate or opinion of value based on supportable evidence and approved methods- For the buyer and the bank
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2.
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The Appraisal Process:
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CMA - (not an appraisal but similar)BPO - Broker's Price Opinion (similar to CMA)--> Not professional appraisalsAn appraiser verifies market, doesn't determine value per se
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3.
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The Appraisal Process (cont):
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- An orderly set of procedures, analysis and data.1) General data: Neighborhood, region etc, social, political influences etc affecting value2) Specific data: Details of property and costs, sales, income, expenses of similar properties
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4.
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Value - property must have 4 characteristics
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DUSTDemand - Utility - usefulness for intended purposeScarcity - finite supplyTransferability - ease of transferring ownership rights
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5.
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Market Value vs. Market Price:
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Market Value: reasonable opinion based on data analysis for most probable price Market Price: Actual selling price
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Basic Principles of Value:- Anticipation- Change- Competition- Conformity - Contribution- Highest and Best Use- Plottage- Regression and Progression- Substitution
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Change - Real Estate subject to natural phenomena Highest and Best Use (HABU) - most profitable or in demand use of a property, is analyzed in order by PLEM - Physically possible - Legally permitted - Economically Feasible - Most profitable Plottage - When 2 plots adjacent of land together have greater value than separate Regression & Progression (Twin principles) - Neighboring properties either decrease or increase value of that in question (good house in bad hood and vice versa)
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7.
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3 basic valuation techniques used:
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- Sales Comparison Approach (market data approach)- Cost Approach- Income Approach
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8.
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Sales Comparison Approach (market data approach)
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- Comparable properties, location, prop rights etc (houses)
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9.
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Cost Approach
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- Based on substitution i.e. how much to rebuild:
--> Using: Square foot method / unit-in-place / quantity survey (materials) /
Index method**Used for non-profits i.e. Schools, ChurchesDepreciation- Physical deterioration - curable- Functional Obsolescence i.e. incurable design/features where cost of repair/change > addition to value- External Obsolescence - external factors cause depreciation i.e. factory, noise, crap hood
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10.
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Income Approach
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- Used for retail / stores / offices etc- **Know formula for value: Income / Rate = Value (draw in circle)
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11.
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Gross Rent Multiplier (GRM)Gross Income Multiplier (GIM)
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Used for appraisal where rent = income such as an apt (as well as commercial where other income also factors)**Look at formulas
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12.
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Reconciliation
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Art of analyzing the 3 approaches, weighing findings and coming up with a market value.
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