Guide to
Real Property
Demonstration
Appraisal
Report Writing
Professional Designation Program
International Association of Assessing Officers
ISBN 0-88329-146-0
Copyright © 2000 by the International Association of Assessing Officers.
130 East Randolph Street, Suite 850, Chicago, Illinois 60601-6217
All rights reserved including rights of reproduction and use in any form or by any means, including
the making of copies by any photo process or by any electronic device (printed, written, or oral), or
recording for sound or visual reproduction, or for use in any knowledge or retrieval system or device, unless permission in writing is obtained from the copyright proprietor.
Printed in the United States of America.
1
Table of Contents
A Message to the Candidate from the Professional Designations Subcommittee .............................. v
Introduction ......................................................................................................................................... 1
Sources of Assistance .......................................................................................................................... 1
Originality of Work ............................................................................................................................. 3
Form .................................................................................................................................................... 3
Selecting the Subject Property ............................................................................................................ 4
Minimum Requirements ...................................................................................................................... 5
Submission and Grading of Reports .................................................................................................... 6
The Grading Process............................................................................................................................ 7
Appeal of Grading ............................................................................................................................... 7
Outline and Requirements ................................................................................................................... 7
Part 1
Title Page ....................................................................................................................................... 7
Letter of Transmittal ...................................................................................................................... 7
Table of Contents .......................................................................................................................... 7
Summary of Salient Facts and Conclusions .................................................................................. 8
Part 2
Identity of the Subject Property ..................................................................................................... 8
History of the Subject Property ..................................................................................................... 8
Property Rights Appraised ............................................................................................................ 8
Purpose of the Appraisal ............................................................................................................... 8
Function of the Appraisal .............................................................................................................. 9
Extent of the Appraisal .................................................................................................................. 9
Assumptions and Limiting Conditions .......................................................................................... 9
Assessment and Tax Analysis ....................................................................................................... 9
City (or Area) Analysis ............................................................................................................... 10
Neighborhood Analysis ............................................................................................................... 10
Part 3
Site Description ........................................................................................................................... 11
Description of Improvements ...................................................................................................... 11
Highest and Best Use Analysis.................................................................................................... 12
The Appraisal Process ................................................................................................................. 13
Part 4
Application of the Cost Approach ............................................................................................... 13
Application of the Income Approach .......................................................................................... 16
Application of the Sales Comparison Approach ......................................................................... 17
Reconciliation and Final Estimate of Value ................................................................................ 19
Certification ................................................................................................................................. 19
Part 5
Addenda ....................................................................................................................................... 20
After Writing the Report ................................................................................................................... 20
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Appendices
Appendix 1. Writing Guide ............................................................................................................... 23
Appendix 2. Footnotes and Endnotes—Citation of Authorities ....................................................... 33
Appendix 3. Suggested Authorities and Materials for Review ......................................................... 37
Appendix 4. Suggested Presentations
A. Letter of Transmittal .............................................................................................................. 38
B. Summary of Salient Facts and Conclusions .......................................................................... 39
C. Assumptions and Limiting Conditions .................................................................................. 40
D. Assessment and Tax Analysis ............................................................................................... 41
E. Units of Comparison Analysis............................................................................................... 42
F. Developing Support for the Estimates of Economic Life and Effective Age ....................... 44
G. Depreciation Analysis ........................................................................................................... 46
H. Market Support for Comparable Sales Adjustments ........................................................... 51
Appendix 5. Requirements for Commercial Property Reports ......................................................... 52
Appendix 6. Computer-Assisted Valuation Report Requirements ................................................... 56
Appendix 7. IAAO Application for Appraisal Report Approval ...................................................... 61
Appendix 8. Data Verification Form................................................................................................. 62
Appendix 9. Real Property Demonstration Appraisal Report Grading Sheet ................................... 63
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iv
A Message to the Candidate from the
Professional Designations Subcommittee
We wish to compliment and congratulate you for your commitment to the
IAAO’s Professional Designation Program and your candidacy.
This new millennial edition of the Guide to Real Property Demonstration
Appraisal Report Writing (Guide), published forty-five years after the first Certified Assessment Evaluator (CAE) designations were awarded, represents the
continuing professional growth of the IAAO’s Professional Designation Program. The IAAO’s designations are now widely regarded as the standards of
excellence in ad valorem appraisal and assessment administration.
It is the Professional Designations Subcommittee’s belief that publication
of this Guide will aid candidates by supplying them with prerequisites and
guidelines essential for the successful completion of a demonstration appraisal report. It is one of the principal documents the IAAO has published to
help you meet program requirements and earn a professional designation.
This Guide is used by all IAAO graders as an outline for grading real
property demonstration reports. It also provides a basis and source for local
seminars and workshops on narrative appraisal reports and serves as the
standard for evaluating reports other than for demonstration purposes.
As the IAAO’s Professional Designation Program evolves and changes,
revisions and updates to the Guide become necessary. This update to the
Guide was completed under the direction of the 1999–2000 Professional
Designations Subcommittee, consisting of Chairperson Marion R. Johnson,
CAE; and subcommittee members Diane M. Ange, CAE; John C. Crissey,
Jr., CAE; David M. Gardner, AAS; Joe B. Hablinski, CAE; and John F.
Ryan, CAE. The Guide Update Subcommittee (John C. Coates, CAE, and
John C. Crissey, Jr., CAE) has attempted to bring the Guide up-to-date
while incorporating as much material published in previous editions as possible. Special acknowledgment is given to all of those contributors to the
Guide who, throughout the years, were so instrumental in transforming
the IAAO’s Professional Designation Program into one of the finest in
the world. A partial listing of IAAO professional designees who were
instrumental in developing earlier editions includes C. Kurt Barrow, CAE;
Bruce A. Belon, CAE; Richard A. Chandler, CAE; Larry J. Clark, CAE;
Elmer A. Cronk, CAE; William A. Diggs, CAE; Robert J. Flanagan, CAE;
Dena S. Haney, CAE; James D. Hester, CAE; Joseph E. Hunt, CAE; Gregory J. Lafakis, CAE; Dean A. McQuown; Robert H. McSwain, CAE;
Verne W. Pottorff, CAE; J. Scott Renne, CAE; Randy Ripperger, CAE;
Bernard W. Saler, CAE; J. Edward Salisbury, CAE; Thomas K. Tegarden,
CAE; Garth E. Thimgan, CAE; Joseph M. Vick, CAE: Richard D. Ward,
CAE; and many others.
This Guide replaces and supersedes all previously published guides and
is the official statement of policy with respect to the preparation and grading of demonstration appraisal reports on real property.
The Professional Designations Subcommittee hopes this Guide not only
helps candidates through the demonstration appraisal report-writing process
but also encourages them to complete all requirements of the designation program. The achievement of a professional designation is an honor not only to
the person who earns one, but to the IAAO and the entire profession.
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5
Introduction
The most challenging and time-consuming requirement for attaining an
IAAO professional designation is the writing of an acceptable demonstration appraisal report. Writing a demonstration appraisal report requires
original research, extensive data gathering, a careful and systematic explanation of the appraisal problem, and clarity and originality of expression,
combined with a painstaking organizational effort. From the perspective of
candidate and grader alike, the demonstration appraisal report is much like
a self-administered thesis or open-book examination.
The Guide to Real Property Demonstration Appraisal Report Writing has been designed to acquaint the IAAO professional designation
candidate with the requirements of form and content for the preparation
of an acceptable real property demonstration appraisal report. Each
candidate is provided with a copy of this Guide when accepted into candidacy. The candidate should retain the Guide and refer to it when writing the demonstration appraisal report. Strict adherence to this Guide
ensures that the candidate will prepare a report meeting the requirements of the IAAO Professional Designation Program.
A demonstration appraisal report is a detailed, written presentation of
the valuation of a real property. A successful report includes the analysis
of all relevant factors and data that lead to the conclusion of value. The report is an exhaustive narrative and testing device representing the
appraiser’s best effort.
Writing a demonstration appraisal report is a vital part of the education
of any professional appraiser, assessor, or property tax administrator. The
estimation of value is a complex technical process. Although concepts can
be learned in the classroom, an in-depth understanding of these concepts
can only be gained by an application of the process to a real-life situation.
All who have successfully completed a demonstration report state emphatically that it increased their understanding of the process and yielded a selfconfidence unequaled by the completion of any other course of instruction.
This Guide provides a step-by-step outline of the procedures and regulations that must be followed in writing and submitting the real property
demonstration appraisal report. A report grading sheet and various technical aids are included in the appendices to this Guide.
A successful report is written so that a nonappraiser or layperson can
understand and follow the appraiser’s reasoning. The theoretical basis of
each approach to value, the sources and use of data, and the careful justification of each decision and conclusion must be presented and explained in
the report. Every adjustment, assumption, conclusion, and all comments
must be substantiated by documented data and analysis in the report.
Merely stating an opinion in the demonstration appraisal report is insufficient and contrary to the objectives of the report. The successful candidate
will understand the difference between opinions and supportable conclusions drawn from the analysis of actual data contained in the report.
The main body of this Guide covers demonstration appraisal reports for
individual single-family residences. Refer to appendices 5 and 6 for the
minimum requirements for commercial property reports and computer-assisted valuation reports.
Sources of
Assistance
Professional Designation Advisors
Many candidates feel the need for guidance and assistance in preparing
their demonstration appraisal report. Professional Designation Advisors
(PDAs) have been appointed to provide encouragement and assistance to
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candidates. PDAs are IAAO professional designees and others who have
volunteered to assist candidates in the program. A list of advisors is published annually by the IAAO, and each candidate is put in contact with the
PDA in his or her area. Candidates who encounter problems or questions
in developing their demonstration appraisal reports should contact the PDA
for their area or the Professional Designations Subcommittee. IAAO headquarters may assist with additional referrals.
Candidates’ Clubs
Candidates’ clubs are voluntary self-help groups formed to help candidates
write demonstration appraisal reports and meet other program requirements. Although the composition and programs of these clubs vary from
area to area, all clubs offer peer support and group involvement. In addition, candidates’ clubs have access to many tools, such as instructional videotapes provided by the Jeff Hunt, CAE, Memorial Candidates Assistance
Trust. A list of candidates’ clubs is provided to each candidate on acceptance into the program. Candidates are encouraged to consider their local
club or IAAO chapter as an invaluable source of support and assistance.
Structured Format Outline
The Professional Designations Subcommittee strongly recommends that
candidates take advantage of the IAAO’s Structured Format Demonstration
Appraisal Report Outline. This outline is available for single-family residential properties only.
The structured format is a standardized outline of a demonstration appraisal report. It is in proper report-writing sequence, and some of the standard report components are already provided. The candidate is able to enter
the appraisal information directly into the structured format.
The structured format outline is available on computer disk. The disk is
in ASCII format and works with at least five word processing packages:
DCA/Display Write, WordPerfect, Wordstar, Multimate, and Microsoft
Word. The disk makes it easier to use a word processing system to write
the report and is available in 3½" or 5¼" diskette sizes.
Report Writing Workbook
The IAAO has published a workbook, 15 Steps to a Successful Residential
Demonstration Appraisal (1992). This workbook lays out the process for
successfully completing the report in an organized, logical manner. 15
Steps helps the candidate, emphasizing the learning aspects of the process,
and may be obtained for a nominal cost.
Jeff Hunt, CAE, Memorial Candidates Assistance Trust
For those candidates who demonstrate financial need, the Jeff Hunt, CAE,
Memorial Candidates Assistance Trust will consider requests for grants.
These funds can be used for any of the costs associated with completion of
the designation program, such as those for report preparation, data gathering,
or grading fees. Applications for grants can be obtained from the IAAO.
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Originality
of Work
When submitting a demonstration appraisal report for grading, candidates must
certify on the Application for Appraisal Report Approval (see appendix 7) that
1. The report has been personally prepared in its entirety, exclusive of typing, by the candidate
2. The appraisal and facts contained in the report are actual and not hypothetical, although hypothetical analyses are required for types of obsolescence not found in the subject property
3. The appraisal is of an existing parcel of real property
The candidate must do original work. Copying from a published demonstration appraisal report or from another’s report is unacceptable and will
result in suspension from candidacy. This prohibition does not apply to the
use of basic definitions of terms such as market value and highest and best
use when the sources for these definitions are cited in the report.
The candidate is further cautioned against relying on previously submitted “passing” reports as guides. No report is perfect. The unwary candidate may compound errors or omissions contained in such reports, resulting
in a failing submission.
A demonstration appraisal report is considered fraudulent if it does not
represent original work or if it contains nonfactual or unacceptable hypothetical data. Fraudulent work is grounds for an immediate suspension of
the grading. A grader who suspects the use of fraudulent data will suspend
the grading and return the report to the grading chairman with a written report of the problem and a request for further investigation. Verified evidence of a fraudulent submission will result in a suspension from candidacy
for at least one year, and perhaps permanently. The Professional Designations Subcommittee reviews all such cases to determine suspension periods
and may recommend further action to the IAAO Ethics Committee.
Group work, through candidates’ clubs or otherwise, is acceptable and
encouraged, as long as the composition, analyses, and conclusions are the
candidate’s own. Please note that most data, including comparables, may
be shared; however, verification, data extraction, and analysis must be the
original work of the candidate author.
The use of a subject property with the knowledge that it has already been
used by another IAAO candidate for a demonstration appraisal report is prohibited, even though different comparables are used. If there is any question
regarding the use of a particular subject property, it would be advisable for
the candidate to check with the IAAO headquarters before using it.
Form
The professional appearance, logical organization, and absence of grammatical and spelling errors are important to the report and to the impression
the report makes on the grader. The following are four major criteria for
proper form of the report:
1. Organization. A well-organized report flows logically within each
section and throughout the entire report. Different readers will arrive at the same conclusions when they read the presentation of data
and the analysis. A well-organized report follows the outline of the
grading sheet (see appendix 9), which is also the outline of the structured format report. The sections of the report will interrelate and
not contradict each other.
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2. Grammar and Spelling. Simplicity is the key. Any technical terms should
be defined. Although typographical errors may be found in the best proofread report, they should be minimized by constant proofreading and by use
of word-processing software’s tools for checking grammar and spelling.
Writing suggestions have been included in this Guide. (See appendix 1.)
3. Mathematics. Nothing will damage a report’s credibility more than a
mathematical error at a key point. Mathematical calculations must be
checked and rechecked constantly through the preparation of the final
copy. Then they should be checked again. Rounding should be consistent within each application.
4. Appearance. Plain white bond paper (8½ × 11) without letterhead,
printed names, or logos must be used. Letterhead may be used for the
Letter of Transmittal (see appendix 4A). The report should be professionally typed and must be bound in a spiral binding or other binding that will
not come apart in handling. Loose-leaf binders are not acceptable. The
report should contain clear, original color photographs of the subject
property and all comparables. Maps and other addenda should be presented in a way that adds to the professional appearance of the report.
Selecting the
Subject
Property
The selection of a subject property is a critical step in the preparation of a
demonstration appraisal report. For either single-family or commercial
property, the candidate should be careful to select a subject that exhibits the
following characteristics:
1. The subject should be old enough to have suffered from the required
forms of depreciation, as detailed in the Minimum Requirements section of this Guide.
2. The subject should permit the thorough demonstration of all three approaches to value.
3. The subject’s highest and best use should be such that the application of the
three approaches to value can be demonstrated correctly and completely.
The residential demonstration appraisal report must be of a single-family residence. Single-family attached residences are acceptable; however,
duplex and condominium residences are not. The candidate is advised to
review the market thoroughly before selecting a subject property, thereby
ensuring that sufficient market data are available on comparable properties.
Candidates may consider gathering comparables first, and then choosing
the subject property based on the available comparable sales.
Candidates should not choose a complex property. The grader is concerned with evaluating demonstrated knowledge of appraisal principles, not
with the application of specialized knowledge. A review of the grading
sheet, in appendix 9 of this Guide, will give the candidate a picture of the
items of major concern to the grader.
The primary reason candidates do not write a successful demonstration report is that they fail to analyze adequately, in accordance with the market, the
subject property and its similarities and dissimilarities to comparable properties.
All too often, a candidate will make an adjustment based on opinion and without documentation, support, or justification, even though the comparable sales
used in the report would have supported such an adjustment. It cannot be overemphasized that every comment, adjustment, or conclusion must be supported
by appropriate, demonstrated analysis of the report data.
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Minimum
Requirements
Demonstration appraisal reports submitted to the IAAO for grading and
credit must meet minimum requirements. The omission of any of the following requirements will result in the immediate return of the report to the
candidate. Although the return of a report does not constitute a grading, it
obviously slows down the grading process.
1. The IAAO form, Application for Appraisal Report Approval, must
be completed, signed by the applicant, and submitted with the report
(see appendix 7).
2. The Letter of Transmittal must be dated, signed, and contain all items
referenced in this Guide (see appendix 4A).
3. Plain white bond paper must be used for the report.
4. The report must be professional in appearance. Although it is permissible to submit a photocopy of the report, the copy must be of high
quality. Photocopies of photographs are not acceptable. Photographs of
the subject property, land sales, rentals, rental sales, and comparable
sales must be included in the report.
5. The report must be accompanied by a completed Data Verification
Form (see appendix 8).
6. The breakdown method of depreciation must be demonstrated in the
cost approach. There are three types of depreciation, with two types
having curable and incurable subcategories. They are
a. Physical deterioration
1. Curable
2. Incurable
b. Functional obsolescence
1. Curable
2. Incurable
c. External obsolescence (locational or economic)
The subject must be of sufficient age and condition to allow the
actual demonstration of physical curable, physical incurable, and at
least one additional form of depreciation. Any form of depreciation
that is not present in the subject must be explained by a hypothetical
numerical example of how the candidate would identify and calculate
the depreciation if it were present.
For example, if the subject property exhibits physical curable,
physical incurable, and functional incurable depreciation, the candidate would identify and measure those forms of depreciation. The
candidate would then provide a hypothetical numerical example of
the proper treatment of functional curable and external obsolescence
to demonstrate his or her understanding of all forms of depreciation.
These are the only hypothetical data that are allowed in the demonstration appraisal report.
7. The date of appraisal of the subject property must be within five years
of the date the report is submitted to IAAO.
8. The report must contain a statement of certification signed by the
candidate.
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9. All facts and appraisal data contained in the report, including those pertaining to the subject property and all comparables, sales, and rentals,
must be actual and verifiable. Except as noted in item 6 above, hypothetical data are unacceptable, and their use is grounds for immediate
rejection of the report. All reports are subject to a field check by the
grading committee.
10. All property sales information must include the book and page number
where the recorded data can be found. The names of the grantee and
grantor must be included. Sale information must include the source of
the sale’s verification and terms of sale.
11. The candidate must certify that the final report conforms to the IAAO
Code of Ethics and Standards of Professional Conduct and to the Uniform Standards of Professional Appraisal Practice.
Each report will be given a cursory, preliminary review for compliance
with these minimum standards before being forwarded to the grader.
Submission
and Grading
of Reports
The required demonstration appraisal report may be submitted at any time
after official notification by the IAAO of an applicant’s acceptance into candidacy. The Professional Designations Subcommittee recommends that candidates complete the education requirements before writing a report.
To submit a report for grading, the candidate must
1. Submit a completed and signed IAAO Application for Appraisal Report
Approval with the report (see appendix 7)
2. Submit a completed Data Verification Form with each report (see
appendix 8)
3. Submit the report and proper payment for grading to the IAAO
headquarters office
The report will be reviewed to ensure that it meets all minimum requirements for form, content, and procedure. Reports failing this review will be returned to the candidate, and the review will not constitute an official grading.
All submitted reports that go through a full, official grading become the
property of the IAAO. The candidate should keep a good copy of any report
submitted for future reference or use.
After grading, a completed copy of the Real Property Demonstration
Appraisal Report Grading Sheet (grading sheet—see appendix 9) is sent to
the candidate, along with the grader’s and grading chairman’s comments.
The candidate should review the comments on rejected reports carefully
and use them as the minimum requirements for successful revision. Most
required revisions can be made from and with the original data included in
the report. Candidates are cautioned against assuming that insufficient data
for analysis will excuse required revisions. An additional grading fee is required when a revised report is submitted for second grading.
When a report is resubmitted after disapproval on the first grading, the
second grader is not restricted in any way by the score or comments of the
first grader. The candidate is advised to review the entire report, not just
the deficiencies noted in the first grading report. The second grading may
or may not go to the same grader.
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If the report is found unacceptable on a second grading, the candidate is
notified and again receives the report sheet and grader’s comments. After a
second disapproval of a report, no further revisions are allowed. The candidate must submit a new report on another subject property.
The Grading
Process
The grader uses the criteria outlined in the grading sheet (see appendix 9),
the Guide to Real Property Demonstration Appraisal Report Writing, the
IAAO textbooks Property Assessment Valuation (PAV ), 2nd ed., and Property Appraisal and Assessment Administration (PAAA), along with other
resources, in grading submitted reports. The demonstration appraisal report
grader is an IAAO designee who has received extensive training and guidance in how to review demonstration appraisal reports fairly and accurately.
The graders and grading chairs are required by the Professional Designations Subcommittee to provide constructive comments on the reports. These
comments are designed to point out strengths and weaknesses to the candidate and provide help in the event a revision is necessary.
Appeal of
Grading
Any candidate who is aggrieved by the failure of his or her report on a second grading may ask the Professional Designations Subcommittee to review the report and, based on such a request, the subcommittee will conduct a thorough examination and render a written decision.
Outline and
Requirements
The purpose of this Guide is to help the candidate write an acceptable demonstration appraisal report and to stress to the candidate items of the report
that need close attention. The candidate should refer to the grading sheet
(see appendix 9) and use this grading sheet as an outline in preparing the
demonstration report.
The sections of the report must be presented in the same order as outlined on the grading sheet, and photographs should be included in the section of the report to which they refer, rather than grouped together in an appendix. Page references are generally from the textbook PAV. However, in
a few cases, PAAA may be referenced.
Part 1
Title Page
The title page should include the address of the subject property, the property type, the date of appraisal, and the name and address of the appraiser.
Letter of Transmittal
A Letter of Transmittal is a business letter to the Professional Designations
Subcommittee that accompanies the report. Sign and date the letter and include
the conclusions of the report and other important items. Include in the body of
the letter the identification of the property by address and legal description, the
property rights appraised, the purpose of the appraisal, the definition of value
and its source, and the final estimate of value. The letter should state the number of pages and exhibits in the report and the appraisal date to which the final
value estimate applies. Finally, the candidate may add any relevant additional
comments, keeping the letter as brief as possible. (See appendix 4A.)
Table of Contents
The table of contents gives page references for the main headings of the report and should refer to all major sections and to the appendices or addenda
at the end of the report.
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Summary of Salient Facts and Conclusions
This section should be a one-page summary of the important data and conclusions of the report. (See appendix 4B.) The reader should be able to read
this page and learn the significant information contained in the report. Brief
statements should be given for the following:
1. Purpose of the appraisal
2. Property rights appraised
3. Address of property
4. Description of the improvements (including square footage and date of
construction)
5. Description of the site, including zoning
6. Assessed valuation and tax data
7. Highest and best use of the site as if vacant and of the property as presently improved (two separate opinions)
8. Actual age, effective age, total economic life, and remaining economic life
9. Separate valuation estimates (cost approach, with separate values for land
and improvements; income approach; and sales comparison approach)
10. Final valuation estimate and valuation date
11. Report date—the date when the report was written
12. Any other information considered important by the appraiser
Part 2
Identity of the Subject Property (PAV, 2nd ed., pp. 38–39)
Provide a brief narrative description of the subject property, including its
property type and location, street address, legal description, and any other
method of description (such as a tax parcel number) so that the subject
property is fully identified. Front and rear color photographs, at least 3" ×
5", of the subject property help the grader visualize the appraisal problem.
History of the Subject Property
The candidate must consider and analyze any prior sales of the subject
property that occurred within the following periods:
1. One year for single-family residential property
2. Three years for all other property types
All relevant sale information must be included in the report.
Property Rights Appraised (PAV, pp. 39–40)
The rights to the subject property that are being appraised must be inclusive
and set forth in writing. These rights will be for fee simple ownership assuming no encumbrances.
Purpose of the Appraisal (PAV, p. 40)
The purpose of the appraisal is to estimate the market value of the defined
rights in the subject property as of a given date. Provide a definition of
market value and give its source in a footnote.
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Function of the Appraisal
State that the intended use of the appraisal is as a demonstration appraisal
for professional designation.
Extent of the Appraisal
Include a statement that describes the extent of the process of collecting,
confirming, and reporting the data. The extent of the appraisal must comply
with the requirements of the Uniform Standards of Professional Appraisal
Practice.
Assumptions and Limiting Conditions
These statements give the background assumptions and limiting conditions
under which the report was prepared. (See appendix 4C.)
1. The date to which the value estimate applies.
2. A statement about the correctness of the legal description and other legal matters, with no liability assumed for these legal matters.
3. A statement that information provided by others or by public records is
assumed to be correct, with no responsibility assumed for errors.
4. A statement that no liability is assumed for hidden defects or for matters outside the scope of the report.
5. A statement that sketches are not necessarily to scale and that their use
is for the report only and not for survey purposes.
6. A statement regarding the use of hazardous materials in the construction of the improvements, if applicable, and those that may or may not
be present in the land.
7. A statement regarding the Americans with Disabilities Act (ADA) and
its probable effect on the subject and its value. This relates primarily to
commercial property appraisal reports.
8. Other statements regarding use of the published report, appearance in
court, or allocation of land and building values.
Assessment and Tax Analysis (PAAA, pp. 10–20)
Assessment and tax analysis is an important aspect of the report, and assessors are expected to analyze tax situations better than fee appraisers. Explain in detail the particular assessment and taxation system applicable to
the subject property and present all pertinent assessment and taxation data,
including all applicable exemptions. List and analyze current values and
taxes, as well as those for the past three to five years. Conduct a cursory assessment ratio study using the comparable sales included in the report to
allow the actual assessment level to be determined and analyzed. The appraiser should include a grid or chart depicting how the assessment level of
the subject property compares with those of similar properties in the subject
area and other areas. From this information, an analysis of equalization can
be performed. The assessment and tax data must also be analyzed to determine if and how property taxes affect the subject property’s market value.
The candidate must be objective in all analyses and discuss the pros and
cons of each of the following as they relate to the subject property:
1. How the assessment level and taxes on the subject property compare
with those of similar properties in the subject area and in competing
areas (see appendix 4D)
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2. What trends can be observed and how likely it is that there will be a significant change in assessment and taxes
3. How the market in general, and specifically for the subject property,
will react to changes
Include a grid or chart indicating the recent assessment history and real
estate taxes of the subject property in the report.
City (or Area) Analysis
The subject property is influenced by physical, economic, governmental, and social forces that shape and determine value. These forces are to
be examined and analyzed on a broad regional basis to determine this
influence. If the property is located within a city, generally this is a
broad enough basis on which to perform the analysis. If not, a county,
township, area, or regional basis may be applicable. Discussion should
include such items as history of the area, location, demographics (population trends over several decades, population projections, and breakdown of population by age and income), employment (major employers
and their stability, potential new employers, and unemployment rates),
governmental services, transportation, income (median family income
trends), finance, education, housing (supply and demand and a broad
overview of housing characteristics), and other social and cultural factors. The candidate should also discuss positive and negative factors
and should be sure that the data analyzed and presented are relevant to
the subject property. The important forces will differ depending on the
area of the country and the type of property.
The primary emphasis of the analysis should be the influence of the
four forces on the type of property being appraised. Is the area growing, declining, or stable? What are the prospects for the future? What will be the
effects on the value of the subject property?
Neighborhood Analysis (PAV, pp. 54–67)
The neighborhood is the immediate environment of the subject property
in which the physical, economic, governmental, and social forces are
hardest at work in molding its value. The neighborhood analysis must
begin with a definition of a neighborhood, including the source of that
definition. The analysis should then identify, analyze, and discuss the
various market forces influencing the subject neighborhood and, in turn,
the subject property. The neighborhood boundaries, which may be manmade, political, or natural, should be clearly delineated and described in
detail, and the reasons why they form the boundaries should be explained. Maps of the neighborhood should be included in the appendix.
Neighborhood characteristics to be analyzed and presented in the report
must include, but are not limited to, the following:
1. Typical age and type of improvements in the neighborhood
2. Range of property values within the neighborhood
3. Range of rental amounts within the neighborhood
4. Owner-tenant ratios and turnover in ownership rates
5. Typical financing and interest rates
–10–
6. Population and demographic data, including the life stage of the neighborhood, income levels, typical educational background of the occupants, and similar data
7. Employment and economic factors
8. All positive and negative influences within the neighborhood
In this section, compare each of the above neighborhood characteristics
with those for the city and area/region as a whole, being sure that the presence or absence of any forces that may cause economic obsolescence in the
subject property are detailed and that all information correlates logically to
information in other sections of the report, such as site description and improvement description sections. Finally, summarize all conclusions regarding the forces affecting the neighborhood. Data presented and analyzed
must be relevant to the subject property.
Part 3
Site Description
This section should contain a graphic and detailed description of the subject
site from which the reader can form a clear mental picture of the site. This
description must include all supporting data used in the site value conclusion, such as the location; area; size; zoning; improvements, including the
structure being appraised; topography; and soil conditions. Further, the
candidate should present and analyze the availability of utilities to the site,
covenants and restrictions of record, and all locational factors relating to
economic or locational obsolescence (if present) that affect the subject site.
Also, present and analyze all supporting data used in the site valuation conclusion, as well as any relating to the site’s highest and best use. Include a
site sketch or plot plan in the appendix and reference the sketch or plan in
this section. In addition, if applicable, include a copy of the zoning ordinance in the appendix and reference the page number in this section.
Description of Improvements
This section should contain a graphic and detailed description of all improvements to the site from which the reader can form a clear mental picture. Although it is not necessary to do a complete “bricks and mortar”
analysis of each item, this section should provide
1. Sufficient detail for the calculation of reproduction or replacement cost
new in the cost approach and of allocations for reserves for replacement
in the income approach for nonresidential reports
2. Sufficient detail to support depreciation analysis
3. Sufficient detail for market comparisons used in the sales comparison
and income approaches
4. Data to support the highest and best use analysis
All supporting data used in the valuation conclusions must be discussed in this section. Items discussed should include, but not be limited to, the following:
1. A physical description of all major components and building size
–11–
2. A discussion of architectural style and design and how these elements
fit the character of the neighborhood, including a reference to the principle of conformity (PAV, p. 22)
3. A description of the types, condition, and adequacy of all equipment
4. An analysis with supporting data, market observations, and definition of
terms of the property’s
a.
b.
c.
d.
Actual age
Effective age
Remaining economic life
Total economic life
(See appendix 4F.)
5. A discussion of the functional utility of the building, especially as it relates
to possible functional obsolescence as measured in the cost approach.
A floor plan of the building should be included in the appendix and referenced in this section.
Highest and Best Use Analysis (PAV, pp. 31–34)
This section draws supporting data from all preceding sections, particularly
the sections on neighborhood analysis, site description, and improvement
description. If the candidate has correctly selected the subject property, the
highest and best use will be its present use. However, even if the conclusion
is obvious, it is necessary for the candidate to demonstrate a proper highest
and best use analysis.
After correctly defining highest and best use, the candidate should then
proceed with separate analyses of the site as if vacant and as if improved.
Each of these analyses should examine the legally permitted, the physically
possible, the economically feasible, and the most profitable uses. It is important that both analyses be performed using these four criteria. The objectives of each analysis are as follows:
Site as if Vacant. The candidate must consider all legally permitted uses
allowed under current zoning and determine which are physically possible.
Financially feasible uses should continue to be evaluated. Remaining options that represent the most profitable use are then examined to determine
the highest and best use.
The conclusion should state the “ideal improvement” (for example, “a
single-family residence containing between 1,400 and 1,600 square feet of
living area”). If the conclusion is that the highest and best use of the site is
a vacant parcel, an opinion as to what would be the ideal improvement in
the future should be stated.
Property as Presently Improved. The candidate must follow the same steps
used in the analysis of the site as if vacant. Begin the analysis with the
“ideal improvement” as stated above and compare the “ideal improvement”
with the site’s present improvements. Investigate alternative scenarios such
as remodeling, adding living area, demolition, and reconstruction.
This section should draw heavily on the valuation principles explaining
the highest and best use of the property.
–12–
The Appraisal Process (PAV, pp. 37–50)
This section is included in order to
1. Define the approaches to value in the report (include definitions and
their sources)
2. Describe the underlying principles of each approach
3. Describe the step-by-step procedures used in each approach
Part 4
Application of the Cost Approach (PAV, pp. 127–86)
The candidate should complete this section of the report first to establish
the land value for use in the approaches that follow. Further, any physical,
functional, or economic conditions affecting the subject property can be
fully analyzed at the outset and referred to later in the report.
This section is very important and technically challenging. The candidate is advised to cover this approach thoroughly, because major errors can
easily occur.
A detailed discussion of each subsection of the cost approach follows.
Introduction
The introduction should define the cost approach and state how the cost approach
is applied, the principles involved, and the steps used in applying the approach.
Site Valuation (PAV, pp. 69–95)
In this subsection, the candidate should discuss briefly the six methods for
valuing the site as if vacant. Outline the method selected and the reasons
for its selection and discuss how this method will be applied. The subject
property selected should have supporting market data sufficient for extracting the site value through the application of the direct sales comparison approach. The candidate must analyze and support this valuation section. Reliance on rules of thumb, such as 4-3-2-1 and 65-35, or on unsupported
opinions is unacceptable.
The presentation and analysis of valuation data should include
1. A description of each comparable sale, including all physical facts relevant to the sale, a brief comparison of each sale to the subject site, all
recordation data, sale price, date of sale, deed type, grantor, grantee,
sources of verification, financing, parcel identification, and notation of
any unusual situations. It is important to include attributes relevant to
the site being valued; for example, easy access for customers and high
traffic counts are important to retail sites, easy access to freeways is important for industrial sites, and low traffic counts are important to residential sites. If the subject property suffers from external obsolescence,
the description of each comparable site must note the absence or presence of this economic deficiency.
2. A discussion of the units of comparison that may apply in valuing the
subject site: front foot, site, square foot, acre, allowable units, and so on.
3. A list and discussion of elements of comparison (such as financing,
time, location, shape, size, and topography) for which adjustments may
be performed.
–13–
4. An analysis of the comparable sales, including adjustments, grids, and
charts showing the application of adjustments. It is advisable to use
two sets of grids: one comparing relevant property characteristics of the
sale comparables, as well as those of the subject property, and another
set summarizing the various adjustments. The candidate must justify all
adjustments, comments, and conclusions. Adjustments must be marketderived, not based on cost. If more than one unit of comparison is analyzed, use a separate adjustment grid for each.
5. A summary subsection giving the final conclusion of value for the site
as of the appraisal date. This summary must discuss the logic that led
to the final value conclusion.
A map that locates the comparable sites and the subject should be
included in the appendix and referenced by page number at this point in
the narrative.
Building Cost and Justification (PAV, pp. 130–38)
This subsection covers the estimate of the cost new of the subject improvement as of the date of appraisal. Before performing actual mathematical
analysis, the candidate should distinguish between reproduction cost new
and replacement cost new, including not only the two definitions, but also a
discussion of which cost concept is being selected and the reasons for its
selection. The cost concept selected will affect how depreciation is calculated. It is highly recommended that reproduction cost new be used so the
candidate can clearly demonstrate competency in identifying and estimating
functional obsolescence. Most cost manuals list replacement cost, not reproduction cost. Therefore, the candidate must exercise caution in the use
and application of such material. Some cost manuals permit upgrading of
cost items to reflect reproduction cost rather than replacement cost.
The four methods of estimating cost new are quantity survey, unit-inplace, comparative unit, and trended original cost. The candidate should define and discuss each of these methods and must select one method and
state the reasons for selecting it.
The estimated cost new includes all improvements, even minor structures and site improvements. When cost manuals are used, all relevant adjustments for time, shape, size, and location must be applied and all calculations must be demonstrated.
The candidate should compare the developed cost new with the cost
experiences of recent construction in the area to note any significant similarity or difference. A documented contractor’s cost estimate will satisfy
this requirement.
Depreciation Analysis (PAV, pp. 153–86)
This subsection should begin with an introductory discussion, complete with
definitions, that will explain and define depreciation, identify and discuss the
three types of depreciation, and distinguish between curable and incurable depreciation. Direct and indirect methods commonly used to estimate depreciation should be identified along with reasons for the selection of the appropriate
method. The aim is to determine the loss in value from cost new until the date
of appraisal. The observed condition breakdown method of measuring accrued
depreciation is required for a demonstration appraisal report because it demands the separation of the elements of depreciation (see appendix 4G).
–14–
Where the subject property suffers from a particular type of depreciation, its effect on value should be examined. Physical deterioration, curable
and incurable, must be present in the subject property. At least one form of
obsolescence must also be present. If it is determined that the property does
not suffer from a particular form of obsolescence, that fact must be stated.
The candidate must then develop a hypothetical, numerical example demonstrating how to recognize and reconcile such obsolescence.
There are two basic rules to follow in analyzing depreciation:
1. The candidate must analyze every component of the structure for all forms
of depreciation. In the physical deterioration component, the candidate
must account for every dollar of cost new. For the other forms of depreciation, support must be drawn from all other sections of the report so the depreciation can be accurately calculated and justified.
2. No item can be depreciated unless it is included in the cost new. A common error is for a candidate to claim that a residence suffers a functional
deficiency because of the lack of an item and then to charge the entire
cost of the item as functional curable obsolescence.
Other common errors are as follows:
1. Assuming incorrectly that the cost to cure physical curable depreciation
is equal to reproduction cost new. The cost of removal of old items or
cost of retrofitting are not included in cost new.
2. Deducting depreciation instead of cost of the physical curable and
short-lived items to develop the cost new of the long-lived items.
3. Failing to test calculated functional obsolescence against conclusions
developed in the sales comparison and income approaches. In order for
functional obsolescence to be curable, the cost to correct the problem
must be less than or equal to the contributory value of the feature. The
candidate must remember that for functional obsolescence to be considered curable, it must be legally possible, physically possible, and financially feasible to effect the cure.
This subsection is generally the most difficult of the demonstration appraisal report. The grade for this section is heavily weighted. Great care
should be taken to avoid incomplete or improper analyses in this subsection. The candidate should thoroughly review the material on depreciation
in PAV before completing this section of the report.
Summary of the Cost Approach
In this subsection, the candidate should make a well-organized presentation
of the analysis and mathematical conclusions of the cost approach that begins with a statement of the total cost new and enumerates details of each
form of depreciation, the total accrued depreciation, and the depreciated
value of improvements. The depreciated value of paving and other minor
site improvements, as well as the site value previously derived, will be
added to this final figure to yield the market value indicated from application of the cost approach.
This mathematical summary should be followed by a short concluding
paragraph giving the date of the value estimate and the appraiser’s final
conclusion of the property’s indicated market value from the application of
the cost approach.
–15–
Application of the Income Approach (PAV, pp. 203–83)
In this subsection, the candidate must demonstrate proper application of the
income approach to valuing a single-family property. (See appendix 5 for
application of the income approach to income-producing properties.) This
is accomplished through the analysis and application of a gross monthly
rent multiplier. The most difficult aspect of this approach is finding and
gathering the data necessary for supporting and calculating the gross rent
multiplier. Understandably, a lack of data can make the task difficult. In the
detailed section-by-section guidelines that follow, alternative procedures
are suggested to alleviate some of the difficulties.
Introduction
The introduction should define the income approach as applied to singlefamily residences, as well as the steps to be taken in its application. Be
sure that both the definition given and the steps enumerated truly apply to
single-family residences. For example, the candidate should not use net income analysis or capitalization rate analysis, which apply more directly to
investment property.
Development of Gross Monthly Rent
Often, there will not be enough market data for clear support or justification
of adjustments to rent for a single-family property. To compensate for the
lack of such supporting data, the candidate must thoroughly analyze the
rentals. Monthly rent should be examined for several units of comparison,
including rent per dwelling unit, per square foot, and per room, and should
be displayed in a grid or chart. (See appendix 4E.) A well-reasoned conclusion about the proper unit of comparison and the unit rental should evolve
from this analysis. If more than one unit of comparison is analyzed, a separate analysis for each is required. The final step should be the application
of this unit rental to the subject property for a determination of its gross
monthly rent. List and discuss elements of comparison and, with actual
market data, support and justify any adjustments to rents for differences between the comparables and the subject property.
In describing the comparable rentals, the candidate should explain the
lease conditions in addition to giving a physical description of each comparable. It is important to include all characteristics whose contributory rental
values may be derived in the adjustment process. Address considerations
such as lease dates, utilities, and furnishings. The candidate should reference (by page number) the comparable rentals map in the appendix.
Development of Gross Rent Multiplier
This section should begin with a description of the comparable properties
that have been both rented and sold. Include all pertinent information regarding the terms of sale, recordation data, sale price, date of sale, type of
deed, grantor, grantee, source of verification, financing, parcel identification, monthly rent, gross rent multiplier, and description of property. At this
point, the candidate should reference (by page number) the gross rent multiplier rental/sales map in the appendix.
The market data requirements of this portion of the report are probably
the most difficult for the candidate to meet. Several ways to approach this
problem are suggested below, ordered from most to least appropriate.
1. The best support of a gross rent multiplier is to find highly comparable, recently sold properties that were leased at market rent at the time of sale or
immediately after. The report should contain at least one such property.
–16–
2. Assuming that highly comparable, recently sold rental properties are scarce,
sales of other single-family properties, not necessarily highly comparable to
the subject, that were rented at the time of sale may be used.
3. Properties that are currently rented and listed for sale or those listed for
sale with an option to rent may be used.
4. If data are still needed, the combination of a rental with a separate but
highly comparable sale may be used. For example, one might combine
a single-family property that is rented with a highly comparable property next door that recently sold.
The same property can be used to support both the determination of
market rent and the proper gross rent multiplier if the property meets criteria for both analyses. A comparison grid giving the salient features of the
properties used, their rents, and their selling prices should be provided for
both market rent and gross rent multiplier analysis.
This analysis should end with a paragraph indicating the candidate’s
conclusion as to the proper gross rent multiplier for the subject property.
Summary of the Income Approach
In this subsection, the candidate should make a well-organized presentation
of the analysis and mathematical conclusions of the income approach, converting the rental income into a value estimate. A narrative explanation of
the process should be given as well as the mathematical application. State
the final indicated value along with the appraisal date for which the value
estimate applies.
Application of the Sales Comparison Approach
(PAV, pp. 97–125)
In this approach, an estimate of market value is produced by comparing the
subject property with similar properties that have recently sold.
Comparable properties are selected for similarities to the subject property, and their sale prices are then adjusted for any dissimilarities from the
subject. An elements of comparison analysis (explained later in this section) is employed to determine which factors or components affect value.
(See appendix 4H.)
Introduction
This introduction should define the sales comparison approach as applied to
the subject property and should provide a brief description of the subject
property as well as the steps in the sales comparison approach. At this
point, the candidate should reference (by page number) the comparable
sales map in the appendix.
Description of Comparable Sales (PAV, pp. 100–102)
Begin this subsection with a description of each comparable sale, including
terms of sale, recordation data, sale price, date of sale, type of deed,
grantor, grantee, sources of verification, financing, parcel identification,
and description of property.
Compare the attributes (physical characteristics, obsolescence, location,
condition, zoning, and so on) of the comparables with those of the subject
property. It is important to include all characteristics whose contributory
values may be derived in the adjustment process.
–17–
Present a grid or chart comparing the main features of the subject property with the comparables.
Units of Comparison Analysis (PAV, p. 104)
A key decision in the application of the sales comparison approach is the
selection and development of proper units of comparison. All units of comparison appropriate for the subject property should be discussed and used
later in the analysis of sales data. The description of the subject and comparable properties should include the units of comparison relevant to the application of this approach; these units should also be displayed in the comparison grid or chart. If more than one unit of comparison is analyzed,
separate adjustments must be performed for each. (See appendix 4E.)
Elements of Comparison Analysis (PAV, pp. 103–4)
Elements of comparison differ from units of comparison in that the analysis
of units of comparison attempts to find the unit of value important to buyers
and sellers in the market for property such as the subject. An analysis of the
elements of comparison isolates the differences in the components of the
subject property and the comparable properties so that proper adjustments
can be made for those components. The elements of comparison relevant to
the subject property should be fully discussed and analyzed.
Market Adjustment Analysis (PAV, pp. 106–17)
The application of this approach involves adjusting the comparable sales
for differences between these properties and the subject property.
The properties selected must differ enough for this adjustment process
to be adequately demonstrated. All adjustments should be developed from
and supported by market data. Too often a candidate will base adjustments
on cost, which is incorrect. The correct method is a sales comparison approach. The search for a proper adjustment factor is a search for the proper
contributing value of a component. Cost does not always equal value.
The sequence of adjustments, if any, usually followed is
1. Adjustment for property rights conveyed
2. Adjustment for financing
3. Adjustment for time
4. Adjustment for location
5. Adjustments for physical features
In the development and support of adjustments, the candidate can use
properties other than the comparable sales described above. Where additional sales data are required solely for the purpose of developing an adjustment factor, a thorough description of those additional properties and their
characteristics should be presented. Avoid using properties sold with atypical financing as comparables. If atypical financing is present, however,
show all calculations for the adjustments.
If regression analysis, adaptive estimation (feedback), or an artificial intelligence program is used to help determine market adjustments, document the
process fully. Describe the database used (including the relationship of the subject to the database), the technique employed, and how to interpret and apply
the resulting coefficients. Describe specifically the application of the adjustment indicated by the model to the comparable properties.
–18–
Proper application of the adjustment process is essential. An adjustment
chart or grid showing the application of each adjustment and the final adjusted value for each comparable is required. Check all calculations! (See
appendix 4H.)
Summary of the Sales Comparison Approach
Apply the unit values selected for the subject property to the characteristics
of the subject property. Where several units of comparison are analyzed,
give a series of indicated values. From that series, select and defend the
value estimate most indicative for the subject property. State in the final
summary paragraph the indicated value from the sales comparison approach and the date to which this estimate applies. The final indicated
value should not be an average of the individual indicated values.
Reconciliation and Final Estimate of Value (PAV, pp. 123–24)
In this section, the candidate demonstrates keen thought and effective communication by tying all data and theory together and developing a final estimate of value. This section should contain the following:
1. Review of Developed Data. Review, point by point, the most relevant
data contained in the body of the report, in the description sections, and
in the application of the approaches to value. This review should address the quantity, quality, and reliability of the data and conclusions in
each section of the report.
2. Analysis of Strengths and Weaknesses of Each Approach. Each approach to value has inherent strengths and weaknesses; some are more
applicable to certain types of properties with certain characteristics.
These strengths and weaknesses should be discussed thoroughly, first
on a theoretical basis and then in relation to the subject property.
Again, the quantity, quality, and reliability of data used in each approach should be discussed in relation to the confidence placed on the
indicated value from each approach.
3. Logical Selection of Final Value. State a logical conclusion as to the final value estimate for the subject property and explain in detail the reasoning behind the value estimate. Include the date of appraisal in the
statement of the final value estimate.
Certification
The candidate must sign a statement that certifies the following facts:
1. The candidate inspected the subject property.
2. The candidate has no present or contemplated future interest in the
subject property.
3. The statements of fact contained in the report are true and correct.
4. The candidate’s compensation is not contingent on the final value estimate or on reporting a predetermined value.
5. The report has been made in conformity with the Code of Ethics and
Standards of Professional Conduct of the International Association of
Assessing Officers, and the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation.
The certification must be dated as well as signed.
–19–
Part 5
Addenda
The candidate is expected to provide supporting addenda as necessary.
Some required addenda, such as photographs, are better placed with the
sections and descriptions that they support. Others, such as maps, are better
placed at the end of the report. For orientation purposes, all maps in the appendix should include arrows indicating north. Wherever addenda appear,
the candidate should remember to reference them accurately in the narrative portions of the report.
Minimum required addenda are
1. Maps of the area and city showing the location of the subject property
2. Map of the neighborhood, with neighborhood boundaries drawn, showing the subject property’s actual location and zoning
3. Maps showing location and zoning of all comparable sales, rentals, and
gross rent multiplier rentals/sales, as well as the subject property
4. Plot plan, with all dimensions and areas related to the narrative portion
of the report
5. Building layout or floor plan sketch, with all dimensions and areas related to the narrative portions of the report
6. Qualifications of the appraiser, including employment, education,
and experience
After Writing
the Report
Aside from the obvious tasks of proofreading and checking the grammar
and mathematical accuracy of the final draft, the candidate should review
the report using a copy of the actual grading sheet (see appendix 9) to make
sure that all sections have been covered. If the candidate has written a
regular format demonstration appraisal report, it might be helpful to review
it using the structured format report as a model. Also, ask someone to review the report. An IAAO designee or Professional Designation Advisor
may be willing to critique the report.
–20–
Appendices
–21–
–22–
Appendix 1
Writing Guide
Proper writing style, grammar, punctuation, and form are essential to impressing the reader that a report is professionally done. This appendix does
not allow for in-depth coverage of these topics but discusses a few basic principles and pinpoints common violations of proper style and form. The goal is
to help you avoid common errors that detract from the report as a whole.
Sources of Help
Many tools are available to help you produce a flawless report. Books and
Internet resources are listed at the end of this appendix. Sophisticated wordprocessing programs, such as Microsoft Word or WordPerfect, help identify errors in spelling and grammar and can be set to hyphenate words properly at the end of lines. Even if you have excellent writing skills, use the
word-processing program’s tools for checking grammar and spelling to
help you spot typographical and careless errors. Dictionaries not only help
you spell and hyphenate words correctly, but can alert you to the connotations of synonymous words and point to the right one for the context.
Basic Principles
Consistency
Choose a style and stick to it. Before you start writing, make decisions
about the style of headings, footnotes or endnotes, punctuation, capitalization, form of technical terms, and treatment of numbers. Create a style sheet
to record your decisions so you can refer to it as you write. A written style
sheet will save you time and help keep the report consistent during the
weeks or months of writing.
Headings
The purpose of headings is to make the structure of your report clearer
to the reader. The various levels of headings indicate the level of importance or generalization you assign to each topic and display for the
reader your idea of the relationships among topics. The headings should
follow your outline of the report. The structured format has made some
of those decisions for you, but you may want to modify the scheme presented to fit your own needs.
Set up a style for three or four levels of headings (or heads, as they are
called by editors). A major, or primary, section head is called an A-head; a
secondary head is called a B-head; the next level, a C-head; and so on. Decide on the distinguishing features of each level of head: type style (roman,
bold, or italics, underlined or not), size (the same size or different sizes),
different font or the same as the type in the body of the report, position
(centered, indented, or run into the text), capitalization (all letters capitalized, first letter of each word capitalized, or only the first word capitalized),
and spacing after the head.
Word-processing programs allow you to choose a font for some of your
heads that distinguishes them from the body of the report. For example, using Helvetica (a sans-serif font) for the A-heads and B-heads makes a nice
contrast with Times Roman (a serif font). However, more than two typefaces in your report will make it look amateurish. The next page shows two
sample heading schemes.
–23–
Appendix 1
continued
Samples of Heading Schemes
DATA ANALYSIS (A-head)
Status of Data (B-head)
Data Collection (C-head)
Sales data. (D-head) For the sales comparison approach….
DATA ANALYSIS (A-head)
Status of Data (B-head)
Data Collection (C-head)
Sales Data. (D-head) For the sales comparison approach….
Footnotes and Endnotes
Decide whether your sources will be recognized in footnotes or endnotes.
Use a style manual (see list at the end of this appendix) to choose a particular style for your references. Add to your style sheet examples of the style
you choose—one for periodical articles, one for books, one for unpublished
material, and so on. The style you choose does not matter, as long as you
apply it consistently. Pay attention to how your examples use capitalization,
punctuation, italics, and so on. Footnotes and endnotes are discussed in
more detail in appendix 2.
Punctuation
The purpose of punctuation is to make a writer’s meaning clear. Most punctuation follows strict rules, but some punctuation is optional. You can
choose, for example, whether to place a comma before and in a series:
Appraisal theory, data analysis, and research….
Appraisal theory, data analysis and research…..
Both are correct, but once you choose a style, apply it consistently—always
place the comma before the and or always leave it out.
Some specific rules of punctuation are covered later in this appendix.
Capitalization
Rules about capitalization can be boiled down to the following: Capitalize
infrequently, and do not use capitalization as a device for emphasis. Observe the following rules for capitalizing in ordinary text (heads and table
heads have their own rules).
–24–
Appendix 1
continued
1. Capitalize proper names of cities, states, countries, streets, bodies of water,
organizations, and institutions. Do not capitalize city, state, street, association, and like words unless they are part of the proper name.
Massachusetts; the state of Massachusetts*; the state
Omaha; the city of Omaha*; the city
Lincoln Park; the park
4146 Grand Avenue; the avenue
Lake Huron; the lake
International Association of Assessing Officers; the association
Bureau of Census; the bureau
Oklahoma State University; the university
*When formal reference to the government entity is intended, it may be
correct to use City of Omaha and State of Massachusetts.
2. Do not capitalize titles of individuals except when used in direct address:
Mr. Jones is Grant County assessor.
Mr. Jones is the assessor of Grant County.
I believe that President Jones has arrived.
Mr. Jones is the president of the university.
3. Do not capitalize technical terms such as cost approach, gross rent
multiplier, or correlation. When an acronym is used for a term (geographic information system—GIS), there is no need to capitalize the
written-out term.
4. Do not capitalize references to pages, chapters, tables, addenda, and
so forth.
See page 6
This is explained in section 3
See table 1 in the addenda
Compare sale 6 with sale 5
Form of Technical Terms
Many acceptable variants of technical terms are used—sales comparison
approach v. comparative sales approach v. market approach. Decide
which variant you will use and then use it consistently. For example, if the
term incurable functional obsolescence is used in one part of the depreciation section, the terms functional incurable obsolescence or incurable obsolescence, functional, should not be used in another part of the section. Use
the glossary or index in your textbooks to identify the variants preferred by
the IAAO. Similarly, if the word data is plural (the data are useful) in the
beginning of a report, it should not become singular later (the data is useful). (Note: Data as a plural is correct; the singular is datum. Use of data in
the singular is recognized by many authorities, however.)
Define technical terms when they first appear. If you use an abbreviation for a technical term, introduce it in parentheses after the first use of the
term: computer-assisted mass appraisal (CAMA) system. Avoid sprinkling
your report with abbreviations and stick to abbreviations that are well
known. Abbreviations acceptable in informal situations should be avoided
in a formal report: capitalization rate, not cap rate; effective gross income,
not effective gross.
–25–
Appendix 1
continued
Treatment of Numbers
Decide when you will use numerals and when you will use words to represent
numbers. According to some manuals, whole numbers from one through
ninety-nine are always written out; according to others, only whole numbers
from one to nine are written out. In general, the following rules apply.
1. In nonscientific text matter, whole numbers of less than one hundred
should be spelled out, and numbers of one hundred or more should be
expressed in figures:
The appraiser used ten comparables.
There were 325 sales in the subject neighborhood last year.
Note: An exception to this rule is made for references to parts of a book
or report:
The comparables are listed in chapter 10, page 8.
2. Numbers applicable to the same category should be treated the same
way in a paragraph; numerals should not be used for some numbers and
words for others. If the largest number contains three or more digits,
use numerals for all. If one number is a decimal, use numerals for
whole numbers of other items in the same category:
There were 25 properties in this neighborhood and 116 properties in
the other.
In the past five years, a 101-story building and two buildings of 20 and
30 stories were built.
Comparable A had 2.5 bathrooms, comparable B had 2, and the subject
property had 3.
3. Notwithstanding any other rules, at the beginning of a sentence all numbers should be written out:
Three hundred sales and 105 comparables were found.
4. In sections of the narrative appraisal report dealing with valuation discussions, numbers may be expressed as figures, in accordance with
rules for scientific usage:
The subject property has 4 rooms per unit. Sale 4 has 4.5 and appears to be
the most comparable. Using the price for sale 4 as an estimate, we have
45 apartments × $8,067 per apartment = $363,015.
5. Use the word percent within the text of a report instead of the sign %:
The adjustment was 10 percent.
Because mathematical formulas and equations are used extensively in demonstration appraisal reports, it is important to follow consistently established conventions in their representation. There are different conventions
for representing mathematical relationships (2 ÷ 1 or 2/1). Choose one
style, add the choice to your style sheet, and use it consistently. Also pay
careful attention to consistent internal logic within an equation or formula.
Following are some points to bear in mind:
–26–
Appendix 1
continued
1. Decimal fractions should always be preceded by a zero if the quantity
expressed can equal or exceed 1.00. If the quantity cannot, in practice,
equal or exceed 1.00, the zero is omitted:
The capitalization rate is .10.
The probability is less than .05.
The level of appraisal is 0.90.
2. Avoid using percentages within equations. Decimals are preferred. In
either case, do not use decimals in equations sometimes and percentages at other times:
$2,500 × .25 + .10 × $300 = $655,
not $2,500 × .25 + 10% × $300 = $655.
3. Do not express statements or headings that occur outside a formula or
equation as if they were part of one. For example, the following heading
is poor form, unless it is part of a formula:
Vacancy and credit loss for the subject property = 4 percent.
The proper form for this heading is
Vacancy and credit loss for the subject property: 4 percent.
The equals sign denotes that what follows is a result of a calculation,
when in fact what is being expressed is that the vacancy and credit loss is
4 percent.
4. Use either symbols expressing mathematical relationships or use words
represented by the symbols, but not both in the same expression. It is
poor form to write:
$280,500 divided by 0.28 = $1,001,786,
or
$280,500/0.28 equals $1,001,786.
5. Punctuate equations at the end as though they were sentences or
parts of sentences.
6. Within the same category, round decimals to the same number of places.
7. In tables and calculations, be sure numbers are properly aligned.
Using the tab key rather than the space bar is one way to achieve
proper alignment.
Clarity and Coherence
Clarity and coherence are inseparable in good writing. Clear writing expresses meaning precisely and unambiguously. Coherence in its literal
sense means sticking together; in technical writing, it means that parts large
and small are logically connected and congruous with one another. Consistency is an important tool in clear, coherent writing. Everything from the
choice of words to sentence structure to paragraph structure to the grand
outline of the whole contributes to both clarity and coherence. This section
focuses on writing clear, coherent sentences and clear, coherent paragraphs.
–27–
Appendix 1
continued
Clear Sentences
Wordiness, lack of parallelism, double meanings, and overly complex sentences get in the way of clear expression of ideas.
Omit needless words.
•
Avoid expressions containing “the fact that.” Due to the fact that can be
replaced by Because.
•
Use apposition instead of which is or who are: Instead of The building,
which is the oldest in the neighborhood, write, The building, the oldest
in the neighborhood,….
•
Avoid constructions requiring that.
Property that is typical of that business type
Property typical of that business type
It might be that a quick phone call can remedy the situation.
A quick phone call might remedy the situation.
•
Avoid a period of and a time frame of
For a period of a few years
For a few years
Sales from a time frame of two years
Sales from two years
Avoid the passive voice, extraneous ideas, and big words when the active
voice and smaller words will communicate your meaning. Instead of, The
base home approach was developed to be used as a communication tool that
will facilitate the understanding and interpretation of assessments by taxpayers, write, The base home approach is a tool to help taxpayers understand
and interpret assessments. If the reason behind development of the base
home approach is important, write, The base home approach was developed
as a tool to help taxpayers understand and interpret assessments.
Writing is often cluttered by repetition of phrases that are clear from the
context. Examine each sentence you write to see if it contains ideas that are
already implied by the context. For example, in the following sentence, is
in the cost approach necessary? To analyze physical depreciation in the
cost approach…. If you are writing a section on the cost approach, it’s already understood.
Make parallel ideas parallel in structure. In the following list, how old
the building is should be replaced by age:
Elements of comparison include the following:
•
overall quality
•
architectural attractiveness
•
how old the building is
•
size
Avoid ambiguity.
–28–
Appendix 1
continued
•
For example, consider the following sentence: The property was appraised as a whole, owned in fee simple title, and free of any encumbrance. It is unclear whether the property was appraised as (if) owned
in a fee simple title or whether the property was actually owned in fee
simple title. Is property the subject of the passive verb was owned or is
owned a participle modifying whole?
•
Dangling modifiers may not completely obscure meaning, but disrupt the
flow of thought. Consider, Subtracting the accrued depreciation, the
present value of the property was $180,000. Clearly the present value did
not subtract the accrued depreciation. However, meaning in the following
is not clear: I used comparable sales from a period of two years to construct a sales comparison grid, which proved to be successful. What was
successful—using sales from two years or constructing a grid?
•
Avoid overly complex sentences. Consider this sentence: Adjust the indicated value of the property for any personal property (such as fixtures, furniture, and equipment) that may be included in the cost estimate and, if necessary, adjust this value, which reflects the value of the
fee simple interest, for the property interest being appraised to arrive at
the indicated value of the specified interest in the property. It is difficult
to discern the meaning. Possibly, the following is meant: Adjust the indicated value of the property for personal property included in the cost
estimate. The result reflects the value of the fee simple interest. If a partial interest is being appraised, adjust the value of the fee simple interest to obtain the value of the specified interest.
Coherent Paragraphs
A paragraph is a group of sentences developing either a single topic or a
specific part of a larger topic. Begin each paragraph with a sentence that
states the topic or, occasionally, with a sentence that makes a transition
from the previous paragraph. Reread each paragraph you have written to
see if each sentence develops the topic of the paragraph. If you start another
topic mid-paragraph, divide the paragraph and develop a new topic sentence or move material that does not belong to an appropriate place.
Some Rules of Punctuation
The Period
The period is used primarily to indicate the end of a declarative sentence.
Rules for using periods in lists and with parentheses often cause confusion.
1. In vertical lists, do not use periods (or any end punctuation) unless one
of the items is a complete sentence:
1. sinking-fund method
2. mortgage-equity method
3. annuity method
Note: As in the above example, numbers in vertical lists are followed by a period; within a paragraph, numbers in a list are enclosed in parentheses: (1) sinking-fund method, (2) mortgage-equity method, and (3) annuity method.
–29–
Appendix 1
continued
2. Periods are placed within the parentheses used to enclose an independent sentence. Periods are placed outside the parentheses if the enclosed
matter is part of an including sentence:
The result of my calculation is $24,250. (I multiplied $12,125 by 2.)
The result of my calculation is $24,250 (derived by multiplying $12,125
by 2).
The Comma
The comma indicates a small interruption in the continuity of a thought or
sentence. One source of confusion is the compound sentence v. the compound predicate.
1. Clauses of a compound sentence (a sentence in which each clause has a
different subject) are generally divided by a comma:
The income approach suggests one value estimate, but the cost approach gives another.
The land value is estimated first, and then the building value is considered.
2. A comma is not used in a sentence with a compound predicate (two or
more verbs with the same subject):
The income approach gives a value estimate and acts as a check against
the other approaches.
The land value is estimated first but bears no relationship to the building value.
3. A dependent clause preceding an independent clause is usually set off
by a comma:
If the city data were useful, I would incorporate it in the report.
Although there is little market data to support such a conclusion, it can
be supported in other ways.
4. A comma is used in full dates but not with simply the month and year.
April 1, 1999
April 1999
The Semicolon
The semicolon indicates a more marked interruption in a sentence than does
a comma. Following are a few common rules for its use.
1. A semicolon is used to separate the two parts of a compound sentence
when unconnected by a conjunction:
The subject city has six parks; two are located in the subject neighborhood.
2. When used between clauses of a compound sentence, the following words
should be preceded by a semicolon: then, however, thus, hence, yet, so:
–30–
Appendix 1
continued
No items of curable functional obsolescence could be found; hence, the
amount is zero.
This amount is difficult to verify in the market; however, it is deemed
an appropriate amount.
3. For clarity, a semicolon should be used to divide clauses of a compound
sentence or items in a series subdivided by commas:
The cost of improvements, such as walks, driveways, and stoops; the
cost of plans, including permits, fees, and insurance; and the market
value of the land are all discussed in this section.
The gross rent multipliers are as follows: sale 1, 7.5; sale 2, 6.1; and
sale 3, 7.2.
The Hyphen and the Dash
Hyphens are used within words to separate parts of a compound word or to
indicate a word break at the end of a line. Questions about the appropriate
use of hyphens may be resolved by the dictionary or a style guide. Over
time, words such as data base become hyphenated, and then become a
single word, database, and some authorities accept the unbroken compound
more quickly than others. Some compounds are temporary—two or more
related modifiers are hyphenated to prevent ambiguity.
It is an eight-unit apartment building of masonry construction.
The house has a 12-foot ceiling.
The property was of brick-and-mortar construction.
The appraiser used the straight-line method.
The Chicago Manual of Style has a useful table of compounds and their
treatment. (See table 6.1 at the end of chapter 6.)
Dashes are marks of punctuation. Typesetters distinguish the en dash,
which is longer than a hyphen, and the em dash, which is twice the length
of the en dash. The two kinds of dashes have different functions. On a typewriter, the em dash is indicated by two hyphens closed up to the words
around them. Some word processing programs can be set to insert the en or
em dash using a symbol font or special characters menu.
En dashes are used most frequently to indicate inclusive numbers or dates:
1994–96
April–June 1999
However, if you use from, be consistent and pair it with a to: from 1994 to
1996, not from 1994–96.
An em dash is used in two ways: (1) to emphasize a thought and (2) to
indicate a parenthetical element or a break in thought that would disrupt the
sentence structure.
The appraiser finds data in the market—not a cost manual.
The appraiser estimated the reproduction cost—the cost of reproducing
an exact replica of the building—as $12 million.
–31–
Appendix 1
continued
Reference Materials for Style
Books
A classic resource and a wonderful book for tuning your ear to good writing is Strunk and White, The Elements of Style. This slim book can be
found in any number of editions and even on line (see web resources below). Strunk and White sets forth elementary rules of usage and principles
of style with an abundance of examples.
For more specific help with questions of usage, try Copperud’s American Usage and Style: The Consensus, last revised and updated in 1980 and
now out of print. Copperud compares the judgments of nine authorities on a
variety of expressions and usages, such as the difference between infer and
imply. The book is arranged alphabetically, which makes it easy to use.
Fowler’s Modern English Usage is also arranged alphabetically. The latest
edition (the third, published in 1996) is edited by R. W. Burchfield and is
not as strict on many issues as previous editions and pays more attention to
differences between British and American English.
The Chicago Manual of Style, referenced at the end of appendix 2, is a
complex and sometimes confusing book. It will not teach you how to write
well, but it is thorough in its treatment of the details of punctuation, capitalization, references, numbers, and so on. The book is well indexed and
cross-referenced.
Web Resources
The world wide web contains an abundance of information on usage and
style—from resources for esoteric grammatical questions to basic tutorials
on English sentence structure. A few of these resources are listed below,
and they can lead you to more.
Guide to Grammar and Writing—contains helpful hints on basic concepts
http://go.to/grammar/ or
http://webster.commnet.edu/HP/pages/darling/grammar.htm
A structured course produced by the University of Ottawa
http://www.uottawa.ca/academic/arts/writcent/hypergrammar
A searchable on-line version of Strunk and White
http://www.bartleby.com/141
On-line English grammar—specialized tutorials for business English
with alphabetical index
http://www.edunet.com/english/grammar/index.cfm
Common errors in English—lists and explains errors in usage, such as
confusion between accept and except
http://www.wsu.edu:8080/~brians/errors/index.html
Grammar Girl’s Guide to the English Language—a collection of the
author’s pet peeves gleaned from her years of experience as a
technical editor with many useful tips, as well as links to other
sites on grammar
http://webwitch.dreamhost.com/grammar.girl/index.html
–32–
Appendix 2
Footnotes and Endnotes—Citation of
Authorities
Throughout the Guide to Real Property Demonstration Appraisal Report Writing there are reminders to authors of demonstration appraisal
reports that each step in the appraisal process must be explained and
substantiated. The authority for a statement in the text of the report is
often a written work, published or unpublished. Authors may wish to
use written sources as authorities for definitions, explanations of techniques, or facts. Notes are used to cite authorities for statements in the
text of the report.
Footnotes or Endnotes?
Notes can be either footnotes or endnotes, but not both in the same text.
Footnotes are placed on the same page as the material they document.
Endnotes are gathered at the end of the section with the heading “Notes.”
Footnotes have the clear advantage of requiring no leafing back and forth
between statement and documentation. They no longer suffer from the disadvantage of making typing of a page difficult. Word-processing programs
make preparation of footnotes or endnotes easy. The program numbers and
arranges the notes automatically. Footnotes may be used to comment on, to
expand, and to qualify material in the text, and to acknowledge personal
help. Because of their physical separation from the text, endnotes are less
suited for these purposes.
By these criteria, the author whose notes are exclusively references
to pages in one or more books or articles, each of which is cited infrequently, may decide to use endnotes. However, the author who wishes
to comment on discrepancies between census data and city planning
data in describing a neighborhood, to comment on reasons for favoring
a particular method of capitalizing income, or to name authors in the
text while giving page numbers in the notes should choose footnotes as
the appropriate format.
Form and Content of Notes
Whether you choose footnotes or endnotes, you must present them in a
standard form. Notes are numbered consecutively through the report in arabic numbers, beginning with 1. A word-processing program will treat the
numbers of the notes as superscripts. In the text, these numbers are placed
after all punctuation marks (except a dash) at the end of a quotation or a
sentence or, if necessary for clarity, at the end of a clause. A note prepared
as commentary should be written as a single paragraph beginning with a
capital letter immediately after the reference number. A note written to cite
the authority for a statement begins immediately after the reference number
with the initial letter capitalized.
The purpose of notes is to provide enough information for the reader to
find the work cited in a library. The arrangement of the note’s content varies according to the style chosen but should always be the same within that
style. The following information should be included:
–33–
Appendix 2
continued
Full name of author or authors (sometimes an institution rather than
a person)
Full title of work (include any subtitle)
Editor if there is one (sometimes the editor is used in place of the author
if no author is listed)
Edition (unless it is the first)
Title of larger work of which this is part
Volume number or series title
Publisher
City of publication
State or province if not clear (use two-letter abbreviation)
Date of publication
Page numbers or volume, issue, and page numbers
Examples
The following examples have been chosen from the kinds of works that
candidates might wish to cite. Numbers in parentheses refer to the notes below, which illustrate the form of citations for a variety of source materials.
Other styles for notes are acceptable as long as the style is self-consistent.
The name of the person or group responsible for the work is entered in
its usual order as given on the title page of the work cited. Responsibility
may lie with one or more persons (1–4), an association (5–7), or a governmental agency (8–10). The person or group responsible for the work may
not be an author but may be an editor or compiler (11–13). When it is not
clear where responsibility lies, this element is omitted (14).
The title is transcribed in full as it appears on the title page, not the
book’s cover or spine (1,12). The title of the larger work is italicized (indicated by underlining if you are working on a typewriter); that of the smaller
work (an article or a chapter) is enclosed in quotation marks (2–4).
The description of the larger work includes series number, edition
number, volume number, and editor for books; it should include volume
number for magazines and journals. Not all publications have all these
characteristics (1–14).
The facts of publication are presented as: (place: publisher, date). The
place must be distinguished from any other place with that name (1, 2, 8,
13), although if the state is clear, the state abbreviation may be omitted (9).
The publisher may be a commercial firm, an organization (and one of its
divisions, as in 12), or a government agency. The date is the publication
date taken from the book’s title page or cover. For magazines and journals
appearing at regular intervals (and for annual volume, if desired) place and
publisher are omitted; only the date of issue is inside the parentheses.
The final element is the exact page or pages being cited. For books, this
element is preceded by a comma; for magazines, journals, and serial volumes it is preceded by a colon.
1.
William N. Kinnard, Jr., Income Property Valuation: Principles and
Techniques of Appraising Income-Producing Real Estate (Lexington, MA:
Heath Lexington Books, 1971), 107–8.
2.
Thomas H. Hall III, “Hotel and Motel Valuation,” in Encyclopedia
of Real Estate Appraising, 3rd ed., ed. Edith J. Friedman (Englewood Cliffs,
NJ: Prentice-Hall, 1978), 635.
–34–
Appendix 2
continued
3.
Bernice T. Dowell, “Hotel Investment Analysis: In Search of Business Value,” Proceedings of the Sixty-second Annual International Conference on Assessment Administration (Chicago: International Association of
Assessing Officers, 1996): 200.
4.
Richard R. Simonds, “Accuracy of the Yield and Direct Capitalization Methods: A Twenty-Year Empirical Study of the Electric Utility Industry,” Assessment Journal 6(4) (July/August 1999): 53.
5.
International Association of Assessing Officers, Property Assessment Valuation, 2nd ed. (Chicago: International Association of Assessing
Officers, 1996), 19–23.
6.
International Association of Assessing Officers, Technical Standards Subcommittee, Standard on Ratio Studies (Chicago: International Association of Assessing Officers, 1999), 4.
7.
Appraisal Institute, The Appraisal of Real Estate, 11th ed. (Chicago:
Appraisal Institute, 1996), 100–104.
8.
U.S. Bureau of the Census, Taxable Property Values, vol. 2, of
1992 Census of Governments (Washington, DC: Government Printing Office, 1994), 143–45.
9.
California, State Board of Equalization, 1997–98 Annual Report
(Sacramento: State Board of Equalization, 1999), 19.
10.
Washington County, Oregon, Department of Assessment and Taxation, Summary of Assessment and Tax Roll, Fiscal Year 1999–2000
(Hillsboro: Department of Assessment and Taxation, 1999), 54.
11.
Edith J. Friedman, ed., Encyclopedia of Real Estate Appraising, 3rd
ed. (Englewood Cliffs, NJ: Prentice-Hall, 1978), 1.
12.
Robert M. Clatanoff, comp., The Valuation of Utility and Transportation Property: A Classified Annotated Bibliography, Bibliographic Series,
no. 5 (Chicago: International Association of Assessing Officers, Research
and Technical Services Department, 1983), 16.
13.
Byrl N. Boyce, comp. and ed., Real Estate Appraisal Terminology,
rev. ed. (Cambridge, MA: Ballinger, 1981), 42.
14.
Webster’s Third New International Dictionary, s.v. “market value.”
Note: For well-known reference books the facts of publication are omitted,
but the edition (if not the first) is specified. Page numbers are not used; the
item is given, preceded by “s.v.” (sub verbo, “under the word”).
Abbreviated References
After the first full reference in a note, subsequent references to a particular
source give author, short title, and page (for example, Kinnard, Income
Property Valuation, 34).
Notes to Tables and Charts
Notes to tables and charts are numbered separately for each table and chart
(not in the sequence of notes to the text) and are placed at the end of the
particular table or chart.
–35–
Appendix 2
continued
References for Style of Notes
Many style manuals—some tied to specific professions—have been
published. The IAAO favors The Chicago Manual of Style, which is undergoing revision for a fifteenth edition. The Associated Press publishes
a well-regarded manual (the latest edition published in 2000). A visit to
a library or a bookstore (physical or on-line) will give you a good idea
of what is available.
The following two resources should serve most purposes.
The Chicago Manual of Style, 14th ed. (Chicago: University of Chicago
Press, 1993).
Kate L. Turabian, John Grossman, and Alice Bennett, A Manual for
Writers of Term Papers, Theses, and Dissertations, 6th ed. (Chicago:
University of Chicago Press, 1996).
–36–
Appendix 3
Suggested Authorities and Materials for Review
The Guide is built upon and referenced to the IAAO textbook, Property
Assessment Valuation. This source should suffice for most of the needs
of the candidate. However, no one authoritative work is so complete that
others may not be needed. The works listed below have been used by
others for demonstration appraisal reports. They are also excellent
sources for review of concepts that will be helpful to the candidate as the
report is developed and written.
Student reference manuals for all IAAO courses, particularly:
Course 101:
Fundamentals of Real Property Appraisal
Course 102:
Income Approach to Valuation
Course 112:
Income Approach to Valuation II
Course 311:
Residential Modeling Concepts
Course 312:
Commercial/Industrial Modeling Concepts
Improving Real Property Assessment. Chicago: International Association of Assessing Officers, 1978.
The Appraisal of Real Estate. Latest edition. Chicago: Appraisal Institute.
Mass Appraisal of Real Property. Chicago: International Association of
Assessing Officers, 1999.
Property Appraisal and Assessment Administration. Chicago, International Association of Assessing Officers, 1990.
–37–
Appendix 4A
Letter of Transmittal
A. Candidate
1234 Main Street
Anytown, Anywhere 99999
Date
Professional Designations Subcommittee
International Association of Assessing Officers
130 East Randolph Street, Suite 850
Chicago, IL 60601
Dear Subcommittee Members:
Attached is a demonstration appraisal of a single-family dwelling located at
301 West 97th Street, Anytown, Anywhere 99999. It is legally described
as LOT 7, BLK P, JAMAJO SUBDIVISION PLAT BOOK J, PAGE 88,
AS RECORDED IN THE OFFICIAL RECORDS OF ANYWHERE
COUNTY, ANYSTATE, USA.
This report, containing eighty-six pages and an addenda of ten exhibits, is
presented as a demonstration of my knowledge of and ability to apply appraisal procedures to an actual property in fulfillment of one of the requirements of the IAAO Professional Designation Program. The purpose of the
report is to estimate the market value of fee simple title to the unencumbered rights to the subject property, as of
July 31, 1999.
Market value as used in the context of this report is defined as:
“...the most probable price expressed in terms of money that a property
would bring if exposed for sale on the open market in an arm’s-length
transaction between a willing seller and a willing buyer, both of whom are
knowledgeable concerning all the uses to which the property is adapted and
for which it is capable of being used.” (Property Appraisal and Assessment
Administration, Chicago: International Association of Assessing Officers,
1990, page 80)
On the basis of my analysis, which is detailed in the report, I estimate the
market value of the subject property as of the appraisal date as:
ninety-eight thousand dollars
($98,000)
Sincerely,
[Signature]
A. Candidate
–38–
Appendix 4B
Summary of Salient Facts and Conclusions
Purpose of the appraisal:
Property rights appraised:
Mailing address:
Improvement:
Lot size:
Zoning:
Assessed valuation:
Assessor’s estimated value (year):
Real estate taxes:
Highest and best use
Site:
Improved property:
Actual age:
Effective age:
Remaining economic life:
Total economic life:
Cost approach:
Land value:
Improvement value:
Income approach:
Sales comparison approach:
Final estimate of value:
Effective date of the appraisal:
Date of the appraisal report:
–39–
To estimate market value
Unencumbered fee simple
interests
301 West 97th St., Anytown,
Anywhere 99999
One-story frame with three
bedrooms, living room,
kitchen, utility room, and 1½
baths, 1,500 square feet,
constructed in 1970
85' × 150'
R1 (single-family residential)
$93,000
$93,000 (1998)
$ 1,041.60
Single-family residence
Single-family residence
18 years
15 years
45 years
60 years
$95,500
$26,000
$69,500
$96,000
$98,000
$98,000
July 31, 1999
August 22, 1999
Appendix 4C
Assumptions and Limiting Conditions
This report is subject to the assumptions and limiting conditions noted below.
1. The final estimate of value developed in this report is as of ___________.
The use of this property at that time determined the distribution of the
valuation between land and improvements. Any change in the present
use of the property or the date of valuation may or may not affect the final conclusion of value that is stated in this report.
2. It is assumed that the legal description, status of title, and other matters
legal in nature are correct. No responsibility is assumed by the appraiser
for such legal matters, and this appraisal should not be construed as an
opinion on such legal matters.
3. In the course of completing this appraisal, information was obtained from
public records and from other individuals. Such information is presumed
to be correct and reliable. No responsibility is assumed for any errors or
omissions in such data.
4. The descriptions and analysis of the improvements in this report are
based upon visual inspection of the property. No liability is assumed for
any hidden defects that may exist in any structure or improvement.
5. Building sketches, plot plans, photographs, and other such exhibits are included in this report only to aid in visualizing the property. No survey of
the property was completed, and drawings may not be to the correct scale.
No liability is assumed for any errors or omissions in such exhibits.
6. The existence of hazardous material, which may or may not be present on
the property, was not observed by the appraiser. The appraiser has no
knowledge of the existence of such materials on or in the property and is
not qualified to detect such substances. The value estimate is predicated
on the assumption that there is no such material on or in the property
that would cause a loss in value. No responsibility is assumed for any
such conditions or for any expertise or engineering knowledge required to discover them.
7. The probable effect of the Americans with Disabilities Act (ADA) on the
value of the subject property has been considered. (Applies primarily to
commercial properties.)
8. The appraiser does not agree to any appearance or the giving of testimony in any court, hearings, or conference unless proper prior arrangements have been made.
–40–
Appendix 4D
Assessment and Tax Analysis
Examples of Assessment History and Assessment Levels
The current assessment on the subject property represents approximately 95
percent of its market value as estimated in this report. The analysis below
indicates that the assessment level of the subject property is proportional
and equitable with other properties located within the area.
Three-Year Assessment and Tax History Analysis
Year
Assessed value
Tax rate
Annual real estate taxes
1996
$87,500
$1.10 (per $100)
$962.50
1997
91,700
1.10 (per $100)
1,008.70
1998
93,000
1.12 (per $100)
1,041.60
Assessment Level Analysis
Assessed value Sale price
Subject
Sq. ft.
Assm’t per sq. ft.
Assm’t ratio
$93,000
$98,075
1,500
$62.00
0.948
Comparable 1
89,000
97,970
1,400
63.57
0.908
Comparable 2
95,500
97,995
1,560
61.21
0.975
Comparable 3
93,000
98,075
1,500
62.00
0.948
Comparable 4
98,100
98,100
1,620
60.55
1.000
–41–
Appendix 4E
Units of Comparison Analysis
A proper analysis of any market data—sales, rentals, and so forth—begins
with an analysis of the data to determine the proper “unit of comparison” for
further analysis and application to a subject property. An analysis of data under this topic is, in essence, a search for the unit value that best represents the
market for this particular type of property. The appropriate unit is the one
that sellers and purchasers use to decide on the price they are willing to accept or to pay for the property in question. The selection of the proper unit of
comparison is an essential appraisal decision. Using units of comparison
makes possible reasonable and logical comparisons among properties.
The choice of unit of comparison will depend on the type of property.
Some common units of comparison for various property types are
•
Vacant land—section, acre, square foot, front foot, site, buildable unit
•
Residential—dwelling unit, square foot of building area, room, bedroom
•
Apartments—apartment unit, square foot of building area, gross rent
multiplier
•
Industrial—square foot, cubic foot
•
Commercial—front foot, net rentable square footage, gross rentable
square footage, unit
Once the selling price or rental value is separated into the value for each
unit, the appraiser must select the unit indicated by the market as the dominant unit of comparison. To make that selection logically, the appraiser
looks for patterns in the per-unit values or for the most stable indication of
a unit value. Once the dominant unit of comparison is identified and selected, all adjustments or applications of the conclusions from the analysis
must be made to or with this unit value. For example:
Sale no.
Sale price
No. of rooms
No. of sq. ft.
Price per room
Price per sq. ft.
1
$72,000
5
1,114
$14,400
$64.63
2
72,700
5
1,161
14,540
62.62
3
79,100
6
1,346
13,183
58.77
4
78,500
6
1,298
13,083
60.48
From the above analysis, it can be determined that size is an important
influence in the value of these properties. However, the most stable relationship appears to be the selling price per square foot. It would therefore
seem logical that the appraiser would select selling price per square foot as
the proper unit of comparison, make any necessary adjustments to the selling price per square foot of the comparable properties, correlate the adjusted selling prices per square foot to that indicated for the subject property, and apply that selected selling price per square foot to the subject’s
square foot area to develop an indicated value for the subject property.
–42–
Appendix 4E
continued
Comparable Rentals Analysis
Rental 1
Rental 2
Rental 3
Subject
$950.00
$925.00
$900.00
N/A
Size in square feet
1,500
1,420
1,400
1,500
Number of rooms
6
6
6
6
$0.63
$0.65
$0.64
N/A
$158.33
$154.17
$150.00
N/A
Monthly rent
Rent per square foot
Rent per room
After examining all units of comparison, monthly rent per square foot appears to be the most consistent. The appraiser should then make any necessary adjustments to the monthly rent per square foot of the comparable rentals and apply the selected monthly rent per square foot to the square footage
of the subject to yield an indicated monthly rent for the subject property.
Size is an important factor affecting value, and the above analysis indicates the most stable unit of comparison is selling price per square foot.
Comparable Sales Analysis
Sale 1
Sale 2
Sale 3
Sale 4
Subject
$98,000
$101,000
$93,500
$105,000
N/A
1,500
1,560
1,400
1,640
1,500
6
6
6
7
6
Price per square foot
$65.33
$64.74
$66.79
$64.02
N/A
Price per room
$16,333
$16,833
$15,583
$15,000
N/A
Time-adjusted sale price
Size
Number of rooms
The appraiser should use selling price per square foot as the appropriate
unit of comparison, make any necessary adjustments to the selling price per
square foot of the comparable sales, and multiply the selected selling price
per square foot by the subject’s square footage to yield an indicated value
for the subject property. The appraiser can adjust all prices for differences between the comparables and the subject and then go to the units of comparison.
Also, it is entirely acceptable for the candidate to select the most comparable
properties and use them as criteria for the final value estimate.
–43–
Appendix 4F
Developing Support for the Estimates of Economic
Life and Effective Age
To use this method, there should be little or no economic or functional obsolescence in the comparable properties, and the proportion between shortlived and long-lived components should be roughly equal. To minimize errors, the effective age of the comparable properties must be correctly
estimated, and several comparable properties that have sold should be analyzed. The comparable sales included in the comparative sales approach
can be used if they are proper for this analysis. Support for the estimate of
economic life and effective age is critical to the cost approach. Economic
life is not a conclusion without support, and use of a published cost guide is
not sufficient support. The support must come from comparable market
data. The analysis for such support proceeds as follows:
Step 1. Find comparable sales with features and amenities similar to the
subject. Qualify those sales as proper market transactions. Begin
with the sale price.
Step 2. Estimate the land value for each comparable property by a proper
procedure and for each property subtract the land value from the
sale price to yield the estimated present value of the improvements.
Step 3. Using proper methods, calculate the replacement or reproduction
cost new (RCN) of the improvements.
Step 4. Subtract the present value of the improvements from the replacement or reproduction cost new to yield the amount of depreciation
indicated by the market.
Step 5. Divide the amount of depreciation by the RCN to yield the percent
of total depreciation.
Step 6. Divide the percentage of total depreciation by the effective age of
the property to yield the annual percentage rate of depreciation.
Remember, the actual age and effective age are nearly the same under normal maintenance.
Step 7. Divide 100 percent by the annual percentage rate of depreciation to
yield the indicated economic life of the property under a straightline, age-to-life depreciation premise.
–44–
Appendix 4F
continued
Calculation of Economic Life and Effective Age
Sale #1
Sale #2
Step 1. Sale price
$98,000
$91,000
Step 2. Land value
–$20,000
–$20,000
$78,000
$71,000
$98,400
$85,400
$20,400
$14,400
21%
17%
Present value of improvements
Step 3. RCN of improvements
Step 4. Amount of depreciation
(RCN – Present value of
improvements)
Step 5. Total % of depreciation
(Amount of depreciation ÷ RCN)
Step 6. Annual rate of depreciation
(Total % of depreciation
÷ effective age)
Step 7. Estimated economic life
21% ÷ 10 yrs = 2.1%
100% ÷ 2.1% = 47.6 yrs
17% ÷ 9 yrs = 1.9%
100% ÷ 1.9% = 52.6 yrs
The analysis and correlation of these economic data would lend market
support to the conclusion that the economic life of the subject property, assuming a straight-line, age-to-life depreciation premise, is 50 years. Also,
if the comparables and the subject are similar in condition, an effective age
of 10 years is supported.
–45–
Appendix 4G
Depreciation Analysis
When an understanding of depreciation is to be shown in a demonstration
appraisal report, observed condition breakdown used with an estimate of
reproduction cost should be the method of choice. This method estimates
how much value is lost due to physical deterioration (in the three categories
of curable, incurable short-lived, and incurable long-lived), functional obsolescence (functional problems within the property lines), and external obsolescence (economic or locational influences on value that are external to
the property lines).
Only the observed condition breakdown method used with reproduction
cost allows an appraiser to review fully all forms of depreciation or allows
the designation candidate an opportunity to exhibit the ability to define and
review all forms of depreciation. Therefore, this method is required for use
in demonstration appraisal reports.
Reproduction cost new and cost to cure both represent cost new as
of the date of appraisal. The difference is that the cost included in RCN
is the cost if done during construction of the building. The amount
shown for cost to cure is the amount to cure the deficiency or to cure the
deferred maintenance item in a building as it currently exists. The cost
to cure typically will exceed RCN because it is more labor intensive. As
an example, the first item listed is repainting the entire house. The cost
to cure exceeds RCN because a painter would have to move furniture,
put down floor covering, and paint around wall trim. The additional labor would, in effect, be more expensive, and, as a result, the cost to cure
would exceed RCN.
Curable Physical Deterioration
Curable physical deterioration may also be called deferred maintenance.
The repair or replacement of items considered to be subject to curable
physical depreciation is considered economically justified as of the date of
the appraisal. The deterioration is measured by the “cost to cure.” This
may or may not be the item’s reproduction cost.
Example
Item
Reproduction cost new
Repainting entire house
Replacing broken front door
Total
Cost to cure
$3,500
$4,250
300
300
$3,800
$4,550
Incurable Physical Deterioration (Short-Lived)
Incurable physical deterioration (short-lived) refers to items that will have
to be replaced at least once during the remaining economic life of the subject. Examples are carpets, roof covers, heaters, air-conditioning units, water heaters, and plumbing fixtures.
Value loss is measured by dividing the observed effective age of the
item by its estimated economic life, to equal the percentage of depreciation
of the reproduction cost of the item.
–46–
Appendix 4G
continued
Example
Item
Effective age Total economic life Depreciation
(years)
(years)
(percent)
RCN
Depreciation
($)
Roof cover
4
16
25
$4,400
$1,100
Decoration
3
5
60
1,500
900
Plumbing fixtures
5
15
33
1,200
400
Water heater
5
15
33
600
200
Heating &
air conditioning
5
20
25
2,000
500
Electric fixtures
5
15
33
1,500
500
Appliances
5
15
33
1,500
500
Floor cover
3
10
30
2,000
600
$14,700
$4,700
Total
Total RCN of short-lived items = $14,700
Total incurable physical deterioration of short-lived items = $4,700
Incurable Physical Deterioration (Long-Lived)
Incurable physical deterioration (long-lived) refers to items that will not have to
be replaced during the remaining economic life of the property. Examples are
the structural frame, floor system, walls, and roof frame. Although it is true
that these items should not have to be replaced during the economic life of the
property, it is also true that the individual components of the structure should
not have economic lives longer than the subject itself. The accurate measure of
incurable physical deterioration (long-lived) is directly related to the appropriate measure of the total economic life and effective age.
Formula for Calculation of Incurable Physical Depreciation
The calculation for incurable physical depreciation is:
RCN of the improvements
– RCN of curable physical and incurable physical (short-lived) items
= Total RCN long-lived items
× (Effective age ÷ total economic life)
= Dollar amount of depreciation caused by incurable physical
long-lived items
–47–
Appendix 4G
continued
Curable Functional Obsolescence
Curable functional obsolescence applies to items or conditions that are economically and physically practical to correct and may be caused by a deficiency requiring additions or modernizations or by superadequacies.
Deficiency Requiring Additions
Curable functional obsolescence in the form of a deficiency requiring additions is measured by the excess cost to cure as of the valuation date over the
cost as of the valuation date if installed new during construction. For example, the appraiser notes an inadequate number of electrical outlets by
contemporary standards and classifies this as curable functional obsolescence. If ten new outlets are needed at a cost of $25 per outlet, the curable
functional obsolescence is measured in the following manner:
Current cost of installation of ten new outlets
Less current cost assuming inclusion
as part of original construction
Amount of curable functional obsolescence
$250
150
$100
This procedure recognizes that the item is absent and that an extra expenditure of $100 is necessary as a penalty to value.
Deficiency Requiring Modernization
Curable functional obsolescence in the form of a deficiency requiring modernization is measured by
The cost new of the existing item
Minus physical deterioration of existing fixtures, minus salvage value, plus
cost to remove and install new fixtures
Minus current cost of item if installed during construction of the structure
For example, the appraiser determines that the property needs new lighting
fixtures. A market analysis in the sales comparison approach shows that
homes with modern lighting fixtures are selling for $10,000 more than
homes with outdated fixtures. Because the enhancement in value ($10,000)
is more than the cost to cure ($6,500), the functional obsolescence is curable. Therefore:
Cost of lighting fixtures and installation plus cost to remove
old fixtures (cost to cure the deficiency)
$6,500
Plus cost new (included in structure’s reproduction cost estimate)
of existing fixtures
4,000
Minus physical deterioration already charged
2,900
Minus salvage value of old fixtures
100
Minus current cost of new fixtures if installed during
construction of building
5,500
Amount of curable functional obsolescence due to modernization $2,000
Remember, for functional obsolescence to be curable, the increased
market value of the property after curing the obsolescence must be at least
equal to the cost to cure the deficiency.
–48–
Appendix 4G
continued
Incurable Functional Obsolescence
Incurable functional obsolescence applies to items or conditions that are
economically or physically impractical to correct and may be caused by deficiencies or superadequacies.
Deficiency
Incurable functional obsolescence caused by a deficiency (item not included in
the cost estimate but should have been) is calculated by measuring the net income loss attributable to the deficiency and dividing it by the improvement’s
capitalization rate (from the income approach). From the result, subtract the
cost new of the item as if it were included in the cost estimate.
For example, assume that a one-story office building was constructed
with no windows in the side or rear walls. Further, assume that because of
the exterior wall construction (tilt slab), windows could not be added without almost demolishing the building. A building contractor’s estimate to
install the windows was $97,000. The net income would be $5,000 more
(because the landlord could charge market rent) if the building had been
constructed with windows in the side and rear walls. Because it would be
fiscally imprudent to cure the obsolescence, the rent loss will continue indefinitely. Assume the appraiser has determined that the building capitalization rate is 10 percent. If the building had been designed to accommodate the windows and the cost included in RCN, the cost would be $21,000.
Estimated net income loss due to deficiency
Building capitalization rate
Income loss divided by building capitalization rate
($5,000/.10)
Less cost if included in RCN
Incurable functional obsolescence estimate (due to deficiency)
$5,000
.10
$50,000
–21,000
$29,000
As an alternative, when appraising single-family residential properties, the
monthly rent loss multiplied by the monthly gross rent multiplier (less cost
if installed new) results in the measure of incurable functional obsolescence
(PAV, p. 171).
The deficiency is considered incurable because the cost to correct the
deficiency exceeds the amount of value loss demonstrated in the market.
Superadequacy
The measure of incurable functional obsolescence due to a superadequacy,
when reproduction cost is the basis, is
The current cost new of the superadequate item
Less physical deterioration already charged
Plus the present value of the added cost of ownership
If the superadequate item yields any value to the property, that value must be
subtracted from the value loss estimate. For example, assume that a residence
was built with terrazzo floors. All like homes in the area that have terrazzo
floors have had the floor covered with carpet, as has the subject. Homes with
carpet over terrazzo floors in the area have been selling for no more than
homes that do not have terrazzo under the carpet. In that the cost to remove
the terrazzo is approximately $25,000 and would yield no increase in property value, the functional obsolescence due to the superadequacy is incurable.
–49–
Appendix 4G
continued
The measure of the obsolescence is calculated as follows:
Reproduction cost new of the terrazzo floor
Less physical deterioration already charged
Plus present value of added cost of ownership
Less value superadequate item adds to property value
Total incurable functional obsolescence (superadequacy)
—reproduction cost basis
$20,000
7,550
0
0
$12,450
External Obsolescence
External or locational obsolescence is described as property value loss due
to factors outside the immediate property configuration. External obsolescence is almost always considered incurable. It is measured by paired sales
analysis and by the capitalization of income loss methods.
Remember that the amount of external obsolescence must be reduced
by the percentage that the site or land value represents to the total value,
because the site or land value as previously estimated should have already
accounted for any adverse effects from outside influences. Assuming that
the appraiser has identified location on a busy street as a form of external
obsolescence, the measure of the obsolescence is calculated as follows:
Monthly rent for comparable property not on busy street
Monthly rent for comparable property on the busy street
Loss in monthly rent due to location
$500
475
$ 25
Gross rent multiplier of 112 × rent loss of $25.00 = $2,800 total external
obsolescence
Subject’s land-to-building ratio = 1:3 (25% land to 75% building)
$2,800 × 75% = $2,100 loss in value to improvements due to external
obsolescence
Note that an amount close to $700 should have been identified as a loss
in value for the site (using paired sales analysis) in the land valuation section of the report. Note further that the actual land-to-building ratio of the
subject property must be used.
Sale price of comparable property not located on busy street
Sale price of comparable property located on the busy street
Total measure of external obsolescence
$50,000
47,300
$ 2,700
$2,700 × 75% = $2,025 loss in value to improvement (using paired sales
analysis)
Remember, each form of obsolescence should be discussed and measured
in each of the three approaches to value. The amounts should correlate!
–50–
Appendix 4H
Market Support for Comparable Sales Adjustments
Any adjustments made to comparable sales must be supported by a proper
analysis of market data. The candidate’s unsupported opinions and the unsupported opinions of others are insufficient to support adjustment amounts. The
amounts used for adjustments are to be the contributory value of the items being adjusted for. Cost does not necessarily equate to value, and it is wrong to
use the cost of an item to make an adjustment unless supporting market data are
analyzed to indicate that the cost equals the contributory value.
Selection of the comparable sales to be used in the report is critical.
They should be selected with the goal of permitting an analysis of the contributory value of the items of difference between the comparables sales
and the subject. The best market support is obtained through an analysis of
paired sales. A sale with the item included is compared to a sale that does
not contain the item. If all other items are the same, or have been previously adjusted for by using supported adjustment amounts obtained through
a proper analysis, the remaining difference in the sales prices can be attributed to the contributory value of the item.
Time Adjustment with Paired Sales
Sale No.
1
First
sale price
$84,500
Second
sale price
$88,140
Percent
change
4.3%
Months between
sales
10
Percent
per month
0.43%
2
95,420
106,340
11.4
24
0.48
3
81,510
85,150
4.5
12
0.38
The indicated time adjustment is supported at approximately 0.40 percent per month.
Adjustment for Garage
Sale 1
After adjustment to the date of appraisal for time and after adjustment for every item of difference
between this sale and sale 3 except the garage, the adjusted sale price is $88,500. (All calculations
should be shown.)
Sale 2
After adjustment to the date of appraisal for time and after adjustment for every item of difference
between this sale and sale 3 except the garage, the adjusted sale price is $88,400. (All calculations
should be shown.)
Sale 3
After adjustment for time to the date of appraisal, the adjusted sale price is $91,000. (All calculations
should be shown.)
The indicated contributory value of the garage by comparing sale 1 to sale 3 is $2,500. The contributory value of the garage by comparing sale 2 to sale 3 is $2,600. Even though a newly constructed garage today would cost $3,250 to build, the indicated amount to adjust for the absence or
presence of a garage is approximately $2,600.
–51–
Appendix 5
Requirements for Commercial Property Reports
The subject property of the required commercial property appraisal report
must be an income-producing property that will allow the candidate to exhibit knowledge of one of the recognized methods of capitalization of income, plus the cost and sales comparison approaches. The rights valued
shall be fee simple ownership assuming no encumbrances. Apartment
buildings of fewer than six units and duplexes are not acceptable. Candidates should be aware that special-purpose properties chosen as the subject
may make it difficult to demonstrate all of the elements required of an
IAAO demonstration appraisal report.
The candidate is not required to make appraisals in any particular geographical area. If there are few suitable property sales available in a given
jurisdiction, the candidate is encouraged to search other jurisdictions to obtain the required market data. In no case is the lack of appropriate data an
acceptable reason for the substitution of hypothetical data or opinion for
supportable analysis of actual data.
The Commercial Property Report
Although most of the requirements for the commercial report will be the
same as the requirements for the residential report, there are differences.
These differences are found mainly in the requirements for the application
of the income approach to value and other related sections.
For example, the Assessment and Tax Analysis section is particularly important in a commercial property demonstration appraisal report because it is a foundation for development of the effective tax rate used in the income approach.
The candidate should follow the body of the Guide and the Grading
Sheet when creating the commercial report. Rather than doing a gross rent
multiplier (GRM) analysis, however, the candidate should apply the following as the income approach analysis. When appraising commercial properties, the GRM should be used as a unit of comparison in the sales comparison approach (PAV, p. 104).
Application of the Income Approach:
Income-Producing Property
Introduction (PAV, pp. 203–4)
An introductory paragraph should define the income approach and give the
steps involved in its application. The candidate should be especially mindful of definitions in this section!
Estimate of Potential Gross Income
Properties comparable to the subject property that are currently rented
should be analyzed to yield an estimate of the gross income for the subject
property. This analysis should begin with a brief physical description of
each comparable property (photographs should be included). All property
characteristics whose contributory rental levels may be derived in the adjustment process should be listed.
Next, units of comparison should be developed using the information
contained in the leases of the comparable properties. All terms and conditions of each lease must be listed.
It is helpful to include two comparison grids. The first grid should
compare the physical characteristics of the rentals; the second should compare the rentals by relevant units of comparison. If more than one unit
–52–
Appendix 5
continued
of comparison is analyzed, separate adjustments must be performed for each.
Finally, a summary paragraph should select the proper rental unit and unit value
for the subject property, discuss the reasons for their selection, and apply the
unit value to the subject property to develop the potential gross income.
Estimate of Effective Gross Income (PAV, pp. 204–13)
The next step in the application of the income approach is to calculate effective gross income by deducting vacancy and collection loss and adding
miscellaneous income. Each deduction or addition should be supported by
market analysis of comparable properties.
Estimate of Operating Expenses and Net Operating Income
(PAV, pp. 214–26)
The most effective way to begin this analysis is by showing the actual operating statements for the property for the past three years. At a minimum, the
most current statement prior to the date of appraisal should be presented.
Next, each individual item of expense should be separately analyzed.
All conclusions as to expense levels must be supported by market data. Actual operating data from comparable properties should be presented. This
analysis should determine
1. If the expense is proper to include as an operating expense in the reconstruction of the operating statement.
2. If the proper amount of expenses expected for the subject property has been
determined. This will entail a comparison of the expense amount for the
subject property with that for like properties. Consult published studies for
information about typical expenses for various property types.
3. If proper amounts for reserves for replacement have been given (making
sure that the cost new of the items and their expected lives correlate
with figures used in the depreciation analysis).
Reconstructed Operating Statement
A numerical summary of the foregoing analysis should be presented in the
form of a reconstructed operating statement. This should begin with the potential gross income, proceed through the effective gross income, and finally end with net operating income for the subject property. Specify
whether the net income has been calculated before recapture and taxes or by
some other concept.
Selection of Capitalization Method
The candidate should discuss fully each of the recognized capitalization
methods, their underlying assumptions, and the shape and duration of the
income stream that would lead to each.
The methods discussed should include
1. Direct capitalization (PAV, pp. 247–49; 277–78)
2. Yield capitalization (PAV, pp. 278–80)
Selection of Proper Capitalization Rates
Once the income analysis is completed, the candidate should develop an
analysis of the proper capitalization rate for the subject property. This section should begin with a discussion of the basic assumptions and formulas
for developing the rates.
–53–
Appendix 5
continued
The analysis should then develop the following rates (where applicable,
the market comparison method should be used):
1.
2.
3.
4.
Overall rate (PAV, pp. 243–54)
Discount rate (PAV, pp. 234–37)
Recapture rate (PAV, pp. 237–39)
Effective tax rate (PAV, pp. 239–42)
Even if the market comparison method is used, the candidate should
demonstrate the other methods of developing capitalization rates, such as
the band-of-investment or mortgage-equity methods.
Selection of Capitalization Technique
The candidate should discuss in detail the three capitalization techniques
and their underlying assumptions, required information, and applicability.
The techniques to be discussed are
1. Building residual technique (PAV, pp. 265–66)
2. Land residual technique (PAV, pp. 266–68)
3. Property residual technique (PAV, pp. 269–70)
State the technique selected and discuss in detail the reasons for its selection.
If direct capitalization is used, an overall rate is applied directly to net
operating income. The rate must be extracted from market information by
dividing the net income of each comparable property by its sale price. Obviously, the comparable sale properties must be relatively similar to the
subject property. The candidate should identify and explain the similarities
of land-to-building ratios, effective age, remaining economic lives, incomeexpense ratios, and other physical, locational, and financial characteristics.
For example, assume that the candidate has found and identified in her
report sales of properties that are truly comparable with the subject (similar
land-to-building ratios, effective age, income-expense ratios, financial characteristics, and so on). Further assume she has found that the tax rate is
$3.00 per hundred (or 3 percent) and that commercial property is assessed
at 50 percent of market value. Therefore, the effective tax rate is 1.5 percent (.03 × 0.50 = .015, or 1.5 percent). The candidate must also deduct real
estate taxes from the comparable sales operating income to arrive at net operating income. As a part of the analysis, a table similar to the table below
should be constructed.
Sample Table of Overall Rate Development
Sale
Sale price
1
2
3
$800,000
$800,000
$960,000
Net operating income
after real estate taxes
$ 94,000
96,000
117,000
Combined discount and
recapture rates
0.1175
0.1200
0.1219
After an in-depth review of all comparability factors, a combined discount and recapture rate of 0.12, or 12 percent, was selected. The effective
tax rate, 1.5 percent, must be added to the 12 percent discount and recapture rate yielding a total overall capitalization rate of 13.5 percent.
–54–
Appendix 5
continued
If yield capitalization is used, market-derived data to support the selection
of rates must be obtained. The rates must be developed, supported, and applied directly to net operating income. The candidate must analyze the shape
and character of the income stream carefully when using these methods.
As stated above, no matter which method is selected, market-derived
support is necessary for justification of the capitalization rate. Further, real
estate taxes should be accounted for as a component (effective tax rate) of
the capitalization rate.
Indicated Value by Application of the Income Approach
The final step in the application of the income approach is capitalization of
the net operating income into a value estimate. A narrative explanation of
the process should be given along with the mathematical application. State
the final indicated value and the date (that is, the appraisal date) to which
the value estimate applies.
In evaluating the application of the income approach, the grader will
primarily be looking at how the candidate has analyzed the quantity,
quality, durability, and shape of the income stream expected for the
property over its economic life. This underlying analysis will be key to
the mechanical application of the income approach. Not only must this
section be presented logically, it must also draw from and relate to the
data in the rest of the report.
–55–
Appendix 6
Computer-Assisted Valuation Report Requirements
Writing the Computer-Assisted Valuation Demonstration Report
The computer-assisted valuation (CAV) report requires candidates to demonstrate their mass appraisal model-building skills and to show how mass
appraisal skills are applied. Also, the report requires candidates to demonstrate their understanding of how computer-assisted valuation processes fit
into assessment operations in an overall sense.
Following are some guidelines for writing a report on the computer-assisted valuation of a neighborhood of residential properties, in partial fulfillment of the requirements of either the CAE or RES professional designations. These guidelines expand upon the general guidelines that apply to
all types of demonstration reports.
When the report is submitted to IAAO, it must be accompanied by the
same information, forms, and fees as the other appraisal reports, except for
the Data Verification Form. The CAV report is processed like all other reports and must be professional in appearance.
Format and Standards
The actual format of the report may vary from candidate to candidate because the data available will vary from jurisdiction to jurisdiction. Nonetheless, standards of proper mass appraisal practice must be adhered to;
these standards are easily found in PAAA, the IAAO textbook Mass Appraisal of Real Property, and in the various IAAO standards on mass appraisal. Also, it is helpful for the candidate to take IAAO course 311, Residential Modeling Concepts, before undertaking a CAV demonstration
report. In addition, only factual, not hypothetical, data are allowed in the
report—the information must be verifiable and is subject to field check.
Grading
The report is graded on a pass/fail basis by graders and reviewers who have
significant experience in computer-assisted valuation.
The CAV Demonstration Report
Mass appraisal relies on automated processes that cannot reasonably be duplicated by manual methods. This calls for the application of statistically
derived data in all three approaches to value and also calls for more detailed
analysis in the Assessment and Tax Analysis section of the report.
Mass appraisal techniques can be used for site valuation, estimation of
cost new, depreciation analysis, estimation of effective age and total economic life, analysis of rents and GRM, adjustments to comparable sales,
capitalization rates, average vacancy and collection loss rates, expense ratios, recapture rates, discount rates, or other items where sufficient quantifiable data exist for analysis.
The types of statistical measures that should be included in the analysis
are measures of central tendency (mean, median, and weighted mean) and
appropriate measures of dispersion (standard deviation, coefficient of variation, and coefficient of dispersion). Depending on the type of analysis, further standardized assessment measures, such as the price-related differential, should also be included.
When the candidate is dealing with data that are modeled using regression analysis or adaptive estimation procedure, several additional statistical
measures must be included to indicate the accuracy of the modeling effort.
Some typical measures, depending on the model calibration technique used,
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Appendix 6
continued
include the standard error of the estimate, the coefficient of determination,
the beta coefficient, the F-statistic, and various residual error measures.
For modeled data, calibration-run reports also should be included.
These include a correlation matrix for regression runs and a final model coefficient printout for either regression or adaptive estimation runs. In addition, model structure and starting weight reports should be included.
Sample Outline of CAV Demonstration Report
Following is a sample table of contents for a CAV report from an actual report that was approved by the IAAO grading committee. You may use this
outline as a guide as you develop your own appraisal report on a neighborhood of properties.
Table of Contents
I. Introduction
A. Title Page
B. Letter of Transmittal
C. Table of Contents
D. Summary of Salient Facts and Conclusions
E. Assumptions and Limiting Conditions
F. Qualifications of the Appraiser
II. System Resources
A. Hardware Description
B. Software Description
C. System Usage and Applications
III. Area Analysis
A. Demand and Supply
B. Description of the Region
C. Social Forces
D. Political-Governmental Forces
E. Economic-Financial Forces
F. Physical-Environmental Forces
G. Description of the Neighborhood
IV. Data Analysis
A. Purpose of the Analysis
B. Sources of Standards
C. Status of Data
1. Data Collection
2. Office Procedures and Internal Controls
3. Maps and Aerial Photography
4. Property Data and Records
5. Approaches to Value Used
6. Public Relations
7. Assessment Maps
8. Improvement Characteristics
9. Land Characteristics
D. Sales Information
1. Procedures for Screening and Qualifying Sales
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Appendix 6
continued
2. Adjustments to Sale Price
a. Financing
b. Personal Property
c. Time (Date of Sale)
3. Reject Codes
4. Electronic Edits
V. Initial Equity Analysis
A. Purpose of the Initial Equity Analysis
B. Stratification
C. Representativeness of the Sample
D. Data Requirements and Availability
E. Outlier Handling
F. Period from which Sales Will Be Drawn
G. Calculating the Sales Ratios
H. Analysis of the Data
1. Measures of Central Tendency
2. Measures of Dispersion
VI. Selecting the Holdout Sample
A. The Adequacy of the Holdout Sample
B. Representativeness of the Sample
1. For All Neighborhoods
2. By Property Characteristics of Improvements in
Each Neighborhood
3. Comparability of Neighborhoods
4. Sample Size by Neighborhood
VII. General Modeling Concepts
A. Description of Computer-Assisted Appraisal
B. Description of Modeling
1. Requirements for a Good Model
2. Defining the Type of Model
a. Additive
b. Multiplicative
c. Hybrid
3. Specifying the Model
4. Interrelationships between Variables
5. Calibrating the Model
6. Testing the Model
7. Refining the Model
8. Applying the Model
C. Discussion of Various Model Calibration Techniques
1. Model Structures Supported
2. Advantages and Disadvantages
3. Decomposability
4. Explainability
5. Sensitivity to Sample Size
6. Variable Representativeness
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Appendix 6
continued
VIII. Valuation Mechanics
A. Cost Approach
1. Introduction to Cost Approach
a. Economic Principles
b. Types of Cost
c. Location
d. Depreciation
2. Description of Original Cost Model
a. Type of Cost
b. Overall Qualitative Variables
c. Building Qualitative Variables
d. Building Quantitative Variables
e. Land Qualitative Variables
f. Land Quantitative Variables
g. Linearized Values of Categorical Variables before
Modeling
h. Starting Coefficients of Variables
3. Result of Calibration Run
a. New Model Specification
b. Final Coefficients or Ending Weights for All Variables
in the New Model
c. Linearizations of All Variables in the New Model
B. Market Approach
1. Introduction to Market Approach
a. Economic Principles
b. Selection of Comparables
c. Selection of Units of Comparison
d. The Adjustment Process
2. Selecting a Method
3. Description of Sales for Analysis
4. Specifying the Model
a. Selection of Independent Variables
i. Using Theoretical Knowledge
ii. Using Intuitive Knowledge
iii. Using Technical Analysis
5. Definition of the Model Structure
6. Classification of the Variables
a. Overall Qualitative Variables
b. Building Qualitative Variables
c. Building Quantitative Variables
d. Land Qualitative Variables
e. Land Quantitative Variables
7. Data Transformations
8. Calibration Technique(s) Used
9. Starting Coefficients and Weights
10. Ending Coefficients and Weights
11. Statistical Performance Indicators for Model
IX. Control Group Evaluation
A. Purpose of This Section
B. Application of Model to Control Group
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C. Overall Model Performance
1. Measures of Central Tendency
2. Measures of Dispersion
D. Reconciliation of Methods
E. Summary Performance of the Holdout Sample
F. Conclusion
Appendix 6
continued
X.
XI.
Application of Model to Subjects
A. Introduction
1. Description of Methodology
2. Description of Final Models
B. Model Comparison to Traditional Approaches to Value
C. Description of Subject Properties
D. Application of Models to the Subject Properties
1. The Cost Approach
2. The Sales Comparison Approach
a. Specifying the Variables
b. Selection of Comparables
c. Application of Adjustments
3. Summary of Appraisals
4. Reconciliation of Values
5. Conclusion
Appendices
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Appendix 7
International Association of Assessing Officers
Application for Appraisal Report Approval
Name
Address
City
State/Province
Postal/Zip Code
I herewith submit a demonstration appraisal report on the real estate known as
located at
to the Professional Designations Subcommittee of the International Association of Assessing Officers for the purpose of fulfilling part of the requirements for the CAE or RES designation.
I hereby certify that
1. I personally prepared this report in its entirety (exclusive of typing), including all work
involved in its preparation;
2. the appraisal and facts contained herein are actual and not hypothetical, and the appraisal
is of an existing parcel of real estate;
3. this report meets the general requirements for preparation of demonstration appraisal reports
as set out in Guide to Real Property Demonstration Appraisal Report Writing as revised to
date;
4. each of the three approaches to value is applied to the subject property, and the correlation
includes the three approaches;
5. the subject property suffers from (a) physical deterioration, both curable and incurable; and
(b) functional obsolescence (curable or incurable) or external obsolescence.
I understand that if any of the above requirements are omitted or erroneously mislabeled to the degree that I have not demonstrated a sufficient knowledge or awareness of appraisal principles, it will
be cause for immediate rejection as a first grading of the demonstration appraisal. The appraisal will
not be graded, and the grading sheet will not be returned to the candidate.
Signed
Date
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Professional Designation Program
International Association of Assessing Officers
130 East Randolph Street, Suite 850
Chicago, Illinois 60601-6217