REAL ESTATE APPRAISAL AND YOU

Chapter 1

AppraisalAppraisal reportAppraisal standardsCompetency RuleEminent domainEthics RuleFormal appraisalHighest and best useInformal appraisalJurisdictional Exception Rule

Legal transactionsMarket transactionsMarket valueProperty taxationReal estateRecord Keeping RuleScope of Work RuleUniform Standards ofProfessional Appraisal PracticeValue

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CHAPTER TERMS AND CONCEPTS

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LEARNING OUTCOMES

1. Define the term appraisal.2. Explain the difference between a formal

and an informal appraisal, and between an appraisal and an appraisal report.

3. List the main uses of appraisals.4. Outline the Ethics Standards of USPAP.5. List several important reasons for

studying appraisal.

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WHAT IS AN APPRAISAL?

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Value

“..…the worth, usefulness, or utility of an object to someone for some purpose.”

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Market Value

“…. most probable selling price of a property in a competitive and openmarket.”

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We usually make an informal appraisal to judge if the prices are reasonable for items we purchase.

The “market analysis” made by brokers and salespeople when listing or selling a given property is best described as an informal appraisal.

Informal Appraisal

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…..a means of reaching an opinion of value by the methodical collection and analysis of relevant market data most often reported in writing.

Formal Appraisals

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FORMAL VS. INFORMAL APPRAISALS

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WHAT IS VALUE?

Worth

Usefulness

Utility

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WHO USES APPRAISALS?

Purchase, Sale & Exchange

Financing

Leasing

Management

Insurance

Remodeling

Market Transactions

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WHO USES APPRAISALS?

Development

Feasibility

Highest and Best Use

Exercise of Purchase and Lease options

Market Transactions

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WHO USES APPRAISALS?

Legal Transactions

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WHO USES APPRAISALS?

Eminent domain - condemnor and condemnee

Property tax assessment and tax appeals cases

Estate, inheritance, and gift taxes

Income tax Casualty loss, deprecation basis and capital gains reporting

Personal and corporate legal actions

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WHO USES APPRAISALS?

Environmental impact reports

Fire or title insurance claims

Marital and partnership dissolutions

Landlord-tenant and property damage lawsuits

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WHO USES APPRAISALS?

Loan foreclosures

Company liquidation or merger

Bankruptcy

Security for bail bonds

Ethics Rule

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USPAP places ethical obligations on the appraiser.

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USPAP

Uniform Standards of Professional Appraisal Practice

Conducto Impartiality, Objectivity, and Independence

Managemento No undisclosed feeso No contingent values

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USPAP

Uniform Standards of Professional Appraisal Practice

Confidentiality – Report only to:o Client and authorized userso State licensing agencies and third parties

authorized by lawo A duly authorized professional peer review

committee

Record Keepingo Keep work file for 5 yearso Keep work file for 2 years after final disposition

of any judicial proceeding where testimony was given.

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ADDITIONAL USPAP RULES

The Competency Rule Need to be competent to appraise the property by

the time you complete the appraisal report

The Scope of Work Rule The Appraiser Must:

o Identify the Problemo Determine and Perform correct Scope of Work to produce

Credible Assignment Resultso Disclose in Report the Scope of Work

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ADDITIONAL USPAP RULES

Jurisdictional Exception Rule Use when any part of USPAP is contrary to

the law or public policy of any jurisdiction

The Supplemental Standards Rule Added requirements issued as policy or

regulation by Government Agencies or similar bodies

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APPRAISAL STANDARDS

Standard 1:Real Property Appraisal Development

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APPRAISAL STANDARDS

Standard 2: Real Property Appraisal Reporting

SUMMARY

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This chapter stressed that an appraisal is simply an opinion of value.

Value generally means the worth or usefulness of something to someone for some purpose.

Although there are many types of value, the purpose of most appraisals is to form an opinion of market value, or the price at which something should sell.