Chapter 18 Real Estate Appraisal

1. Chapter 18Real Estate Appraisal _________________________

2. Appraisals • Appraisal: An opinion of value that is documented (it can be oral or written). [Compare with an estimate] • Reasons/Uses of Appraisals: -sale (transfer title) -financing -taxation -insurance -condemnation

3. Three approaches to Value • Market – comparable sales data • Cost – construction cost plus land value • Income – monetary returns of property capitalized

4. Valuing a House Market Comparison Approach +$2,960 -$2,700 -$7,560

5. Costs Approach to Value Step 1: Estimate land as vacant $ 30,000 Step 2: Estimate new constructioncost of similar building $120,000 Step 3: Less estimated depreciation -12,000 Step 4: Indicated value of building $108,000 Step 5: Appraised property value $138,000by the cost approach

6. Square-foot Method of Cost Estimating

7. Income Approach Variation by Direct Capitalization Income / Rate = Value $18,000 / 0.09 = $200,000

8. Principles of Value • scarcity • utility • transferability • desirability Note: Usually use “market value” but other values: tax, insurance, etc. Most values based on “highest and best use.”

9. Depreciation • Physical • Functional • Economic