Chapter 1
REAL ESTATE APPRAISAL AND YOU
CHAPTER TERMS AND CONCEPTS
Appraisal
Legal transactions
Appraisal report
Market transactions
Appraisal standards
Market value
Competency Rule
Property taxation
Eminent domain
Real estate
Ethics Rule
Record Keeping Rule
Formal appraisal
Scope of Work Rule
Highest and best use
Uniform Standards of
Informal appraisal
Professional Appraisal Practice
Jurisdictional Exception Rule
Value
2
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.
3
WHAT IS AN APPRAISAL?
4
Value
“..…the worth, usefulness, or utility of
an object to someone for some
purpose.”
5
Market Value
“…. most probable selling
price of a property in a
competitive and open
market.”
6
Informal Appraisal
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.
7
Formal Appraisals
…..a means of reaching an opinion of value by the
methodical collection and analysis of relevant market
data most often reported in writing.
8
FORMAL VS. INFORMAL APPRAISALS
WHAT IS VALUE?
Worth
Usefulness
Utility
WHO USES APPRAISALS?
Market Transactions
Purchase, Sale &
Exchange
Financing
Leasing
Management
Insurance
Remodeling
11
WHO USES APPRAISALS?
Market Transactions
Development
Feasibility
Highest and Best Use
Exercise of Purchase and
Lease options
12
WHO USES APPRAISALS?
Legal Transactions
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
WHO USES APPRAISALS?
Environmental impact reports
Fire or title insurance claims
Marital and partnership dissolutions
Landlord-tenant and property damage lawsuits
WHO USES APPRAISALS?
Loan foreclosures
Company liquidation or merger
Bankruptcy
Security for bail bonds
Ethics Rule
USPAP places ethical
obligations on the appraiser.
USPAP
Uniform Standards of Professional Appraisal
Practice
 Conduct
o
Impartiality, Objectivity, and Independence
 Management
No undisclosed fees
o No contingent values
o
USPAP
Uniform Standards of Professional Appraisal
Practice
 Confidentiality – Report only to:
Client and authorized users
o State licensing agencies and third parties
authorized by law
o A duly authorized professional peer review
committee
o
 Record Keeping
Keep work file for 5 years
o Keep work file for 2 years after final disposition
of any judicial proceeding where testimony was
given.
o
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
o
o
Identify the Problem
Determine and Perform correct Scope of Work to produce
Credible Assignment Results
Disclose in Report the Scope of Work
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
APPRAISAL STANDARDS
Standard 1:
Real Property Appraisal Development
APPRAISAL STANDARDS
Standard 2:
 Real Property Appraisal Reporting
SUMMARY
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.