# Types of Appraisals

```Real Estate Principles
Tenth Edition
Real Estate:
An Introduction to the Profession
Tenth Edition
Chapter 18
Real Estate Appraisal
_________________________
Appraisal
An estimate of value.
 Three approaches to estimating value:

Market – comparable sales data
 Cost – construction cost plus land value
 Income – monetary returns of property
capitalized

Valuing a House
Market Comparison Approach
-\$7,560
+\$2,960
-\$2,700
Competitive Market Analysis
Calculating Gross Rent Multiplier
Gross Rent
Multiplier
\$245,000
Gross
Annual
Rents
\$34,900
No.2
\$160,000
\$22,988
= 6.96
No.3
\$204,000
\$29,352
= 6.95
No.4
\$196,000
\$27,762
= 7.06
As a Group:
\$805,000
\$115,002
= 7.00
Building
Sales Price
No.1
= 7.02
Costs Approach to Value
Step 1: Estimate land as vacant
\$ 30,000
Step 2: Estimate new construction
cost 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
by the cost approach
\$138,000
Square-foot Method of Cost Estimating
Income Approach
Variation by Direct Capitalization
Income / Rate = Value
\$18,000 / 0.09 = \$200,000
Projected Annual Operating Statement
(Pro Forma Statement)
Operating expense ratio: \$31,070 / \$79,800 = 38.9%
Direct Capitalization Using an Overall Rate
Income
= Value
Overall Rate
\$45,400
0.09376
= \$484,215
Overall Rates - 10-year Holding
Period, 25-year Loan for 75% of the
Purchase Price, 10% Investor Return
Reconciliation
Market Approach
Cost Approach
Income Approach
Final Indicated Value
\$180,000 x 75% = \$135,000
\$200,000 x 20% = \$ 40,000
\$160,000 x 5% = \$ 8,000
\$183,000
Types of Appraisals and
Reporting Options under USPAP
Types of Appraisals
• Complete appraisal
• Limited appraisal
Reporting Options
• Self-contained appraisal report
• Summary report
• Restrictive report
Formats of Appraisal Reports
1. Letter report
2. Form report
3. Narrative report
4. Review appraisals
5. Real estate analysis
Certified General Appraiser
 Certified Residential Appraiser
 Provisional licensed real estate appraiser
 Appraiser trainee

Principles of Value
 Principle of Anticipation
 Principle of Substitution
 Highest and best use of a property
 Principle of competition
 Principle of supply and demand
 Principle of change
 Principle of contribution
 Principle of conformity
Value
Market value
 Assessed value
 Insurance value
 Loan value
 Estate tax value
 Plottage value
 Rental value
 Replacement value

Markets
Buyer’s market – excess supply of
housing for sale.
 Seller’s market – demand exceeds
supply.

Professional Appraisal Societies

The American Institute of Real Estate
Appraisers (AIREA)




MAI
SRA
Society of Real Estate Appraisers
NATIONAL Association of Independent Fee
Appraisers
 Farm Managers and Rural Appraisers
 National Society of Real Estate Appraisers
 American Society of Appraisers
Key Terms

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
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
Appraisal
Capitalize
Comparables
Cost approach
Depreciation
FIRREA
Gross rent multiplier

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Highest and best use
Income approach
Market approach
Market value
Operating expenses
Scheduled gross,
Projected gross
USPAP
```