Modern Real Estate Practice in Pennsylvania 12 th

Modern Real Estate Practice in Pennsylvania 12 th Edition Chapter 21: Appraising Real Estate

21 Real Estate Appraisal • Learning objectives – Identify the different types and basic principles of value – Describe three basic valuation approaches used by appraisers – Explain the steps in the appraisal process – Distinguish the four methods of determining reproduction or replacement cost – Define key terms © 2012 Kaplan, Inc. 2

21 Real Estate Appraisal • Appraising – Regulation of appraisal activities – PA requires certification • State-certified general real estate appraiser • State-certified residential real estate appraiser • Broker/appraiser – Competitive market analysis (not an appraisal) • Real estate licensee may provide • To secure listing; assist buyer – Broker’s price opinion(not an appraisal) © 2012 Kaplan, Inc. 3

21 Real Estate Appraisal • Appraisal process 1. State the problem 2. List the data needed 3. Gather, record, verify, and analyze data • General data, specific data, data for each approach 4. Determine the highest and best use 5. Estimate the land value 6. Estimate value by each of the three approaches 7. Reconcile the estimated values 8. Report the final value estimate © 2012 Kaplan, Inc. 4

21 Real Estate Appraisal • Value – Market value • • Most probably price Reasonable time on market Cash or equivalent Unaffected by special financing or terms – Market value versus market price – Market value versus cost © 2012 Kaplan, Inc. 5

21 Real Estate Appraisal • Basic principles of value – Anticipation – Change – Competition – Conformity – Contribution – Highest and best use © 2012 Kaplan, Inc. 6

21 Real Estate Appraisal • Basic principles of value – Increasing and diminishing returns – Plottage – Regression and progression – Substitution – Supply and demand © 2012 Kaplan, Inc. 7

21 Real Estate Appraisal • Three approached to value – Sales comparison • Residential • Raw land – Cost • New construction • Special properties – Income • Produce income © 2012 Kaplan, Inc. 8

21 Real Estate Appraisal • Sales comparison approach to value – Subject property versus comparable properties – Property rights – Financing concessions – Market conditions – Conditions of sale – Market conditions since date of sale – Location – Physical features and amenities © 2012 Kaplan, Inc. 9

21 Real Estate Appraisal • Cost approach to value – Reproduction cost versus replacement cost new • • Square-foot method Unit-in-place method Quantity-survey method Index method – Depreciation • Physical deterioration • Functional obsolescence • External obsolescence © 2012 Kaplan, Inc. 10

21 Real Estate Appraisal • Income approach to value – Annual potential income – Effective gross income – Annual operating expenses – Capitalization rate – Gross rent multiplier (GRM) – Gross income multiplier (GIM) © 2012 Kaplan, Inc. 11

21 Real Estate Appraisal • Reconciliation – Not an average of the three estimates of value – Certain approaches are more valid and reliable with some types of properties – Different weight given to each approach © 2012 Kaplan, Inc. 12