Appraisal concepts


Appraisal concepts

Concept of Land

• Attributes; – Land is totally unique in many different ways, location, type of asset, so forth – We just view land differently than anything else; there is a real intrinsic value to it; people fight and die over it – Land is useful and so its valuable

Concepts of land

• Geographic – Land represents a specific point on the earth. We can narrow down the description to be very precise – Geography determines the types of resources that are available and they determine the value of the land; both human and physical resource base will determine the value

Concepts of land

• • Legal concepts – Own the surface and what’s above and below it** Bundle of rights – Sometimes referred to as a bundle of sticks; each right represents a ‘stick’ in the bundle • Right to occupy and for private use • Right to convey the rights (lease, sell) • Right to bequest (give it away) • Right to do none of these, just sit

Concepts of land

• Limits on use rights for land – Public • Taxation • Eminent Domain • Police • Escheat – Private • Restrictive covenants in the deed • Easement • Reservation

Social and economic

• • • • • Land is limited resource to be shared by everyone Different points of view; ‘when it comes to land there are a thousand different economies’ Society has restraints on the use of land Land is a fundamental resources The economic concepts related to land form the basis of appraisal

Value concepts

• • • Real estate; usually includes the buildings and other permanent attachments Real property; interest, benefits and rights in ownership of real estate.

Fixtures; attachments; usually determined by law whether or not it is something that can be removed.

Personal property tests

• • • How is the property attached to the land The intention of the one who made the attachment The nature of the item and the adaptation to the real estate.


• • Price; what a particular buyer agreed to pay and a particular seller agreed to accept; different circumstances will change the price. Remember price and opinion of value Cost; this is total expenditure including things like architectural design, financing, and so forth


• Market Value: You must know how the market value is determined and what it represents “The most probable price, which a property should bring in a competitive and open market under all conditions requisite to fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.”


• • • • • Assumes a specific date Both parties are typically motivated and well informed Reasonable time for exposure to the market Cash or terms of financing comparable to cash Normal consideration; no special or creative financing, no sales concessions

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Value fundamentals and types

Utility; satisfaction Scarcity; Current or anticipated supply relative to the demand Desire; Effective purchasing power (effective demand) – Do you have the money or resources Use, investment, going concern, insurable, assessed and liquidation are all other types of values

Partial interests in land

• • Fee simple; ownership without limitations or restrictions. An appraisal is done as if it were fee simple Life estates; all of the rights, use and control are limited to the lifetime of the designated party; created by wills or deeds of conveyance – Life tenant- the one who holds the life estate – Remainderman- person who gets the property on the death of the life tenant

Partial interests in land

• Tenancy; – Tenancy by entirety; husband and wife; both own it together and can’t do anything without the other agreeing – Joint tenants; joint ownership with the right of survivorship; you own it together but when you die your share goes back to the other owners – Tenancy in common; there is an undivided interest in the property; when you die your share goes to your heirs

Partial interests in land

• • • Vertical interests; in the ground and the air Easements; convey use but not the ownership of the property Condominiums, cooperatives, time shares are other forms of ownership