Chapter 1
Real Estate Appraisal and You
Basic Real Estate Appraisal: Principles & Procedures – 9th Edition
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SLIDE GUIDE
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STUDENT LEARNING OUTCOMES
• Define the term Appraisal
• Differentiate between a Formal &
Informal Appraisal; and between an
Appraisal and Appraisal Report
• List main uses of Appraisals
• Outline the Ethics Rule of USPAP
• List important reason for studying
appraisal
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1.1 WHAT IS AN APPRAISAL?
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…an Estimate or Opinion of Value of
some object or thing….
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WHAT DO WE MEAN BY VALUE?
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…the worth, usefulness, or utility of an
object to someone for some purpose.
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MARKET VALUE OPINION
• The purpose of most appraisals
• Most easily defined as the….
“…..most probable selling price of a
property in a competitive and open
market.”
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INFORMAL APPRAISALS
• Our basis for judging if prices for
items we purchase are reasonable
• We develop an intuitive knowledge of
prices through experience (shopping)
• “Market Analyses” or BPO’s are
sometimes informal appraisals
• Some are very professional and may contain
same content found in a Formal Appraisal
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FORMAL APPRAISALS
“…a means of reaching an opinion of
value by the methodical collection and
analysis of relevant market data.”
• Most often reported in writing
• Although based on supporting data,
to a lesser degree they also rely on
judgment and intuition
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FORMAL vs. INFORMAL APPRAISALS
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• Slide Title: Calibri Bold 40 pt
• Right Panel: Upper Right is Page #
• Right Panel: Lower Right is Slide #
Figure 1.1
• Analysis of Supporting Data vs. Intuition & Experience
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THE APPRAISAL REPORT
• Results of Formal Reports are
communicated to the client by an
appraisal report – written or oral
• Professional & legal standards govern
form and content
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USING APPRAISAL SKILLS
Reasons for studying / developing skills:
• Improving price estimating skills
• To learn basic appraisal knowledge
and terminology
• Help prepare for licensing exams
• Assist in understanding appraisals and
communication with appraisers
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1.2 HOW APPRAISALS ARE USED
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Appraisals serve two important
functions in Society:
1. Assist the public by advising them on
questions of property value.
2. Provide an unbiased independent
and disinterested opinion of value.
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OCCASIONS REQUIRING APPRAISALS
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Market Transactions
Purchase, Sale & Exchange
Financing
Leasing
Management
Insurance Coverage
Remodeling & Development
Feasibility and Highest & Best Use Analysis
Exercise of Purchase and Lease Options
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OCCASIONS REQUIRING APPRAISALS
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Legal Transactions
Eminent Domain
Property Tax Assessment & Tax Appeals
Estate, Inheritance, and Gift Taxes
Income Tax – Casualty Loss, Depreciation Basis &
Capital Gains Reporting
Personal & Corporate Legal Actions
Environmental Impact Reports
Fire or Title Insurance Claims
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OCCASIONS REQUIRING APPRAISALS
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Legal Transactions (con’t.)
Marital (Divorce) & Partnership Dissolutions
Landlord-Tenant & Property Damage Lawsuits
Loan Foreclosures (Short Sale / Defaults)
Company Liquidation or Merger
Bankruptcy
Security for Bail Bonds
• Legal Actions often require Appraisers
to Act as and Testify as Expert Witnesses
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1.3 STANDARDS OF APPRAISAL PRACTICE
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Uniform Standards of Professional
Appraisal Practice (USPAP)
• USPAP places Ethical Obligations on
Appraisers
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USPAP RULES
ETHICS RULE
The Ethics Rule places ethical obligations
in three (3) general areas of practice:
• Conduct
• Management
• Confidentiality
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ETHICS RULE
Conduct (Section) requires…
• Impartiality, Objectivity & Independence
Management (Section) prohibits…
• Undisclosed fees, commissions, etc.
• Compensation contingent on value/results
• False, misleading or exaggerated advertising
• Lack of a Signed Certification
(also see Record Keeping Rule)
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ETHICS RULE (con’t.)
Confidentiality (Section) limits disclosure
of Confidential Factual Data and
Assignment Results only to:
• The Client and those he/she authorizes
• State licensing agencies and third parties
authorized by law
• A duly authorized professional peer review
committee
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OTHER USPAP RULES
Record Keeping Rule
• Keep Work File for Five Years
• Keep Work File Two Years after final
disposition of any judicial proceeding
where testimony was given
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OTHER USPAP RULES
Competency Rule
• Need to be competent to appraise the
property by the time you complete
the appraisal
• Client must be advised of competency
at time of engagement
• Disclosure is required
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OTHER USPAP RULES
Scope of Work Rule
An Appraiser must:
• Identify the problem to be solved
• Determine and Perform the correct
Scope of Work to produce Credible
Assignment Results
• Disclose in the Scope of Work
completed in the Report
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OTHER USPAP RULES
Jurisdictional Exception Rule
• Use when any part of USPAP is
contrary to the law…
“..if applicable law or regulation precludes
compliance with any part of USPAP, only
that part shall be void for that
assignment.”
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STANDARDS OF PRACTICE (USPAP)
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Standard 1
• Real Property Appraisal Development
• Identify the problem to be solved
• Determine the Scope of Work necessary to
solve the problem
• Correctly complete the necessary research and
analysis to produce a credible appraisal
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STANDARDS OF PRACTICE (USPAP)
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Standard 2
• Real Property Appraisal Reporting
• An appraiser must communicate each analysis,
opinion, and conclusion in a manner that is not
misleading
USPAP is currently modified every two years; and
discussed in more detail in Chapters 16 & 18
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APPRAISER LICENCING & CERTIFICATION
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State and Federal Laws requiring that appraisals must meet
certain requirements became effective in 1993.
Appraisals must be performed by licensed or certified
appraisers:
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That conform to appraisal and development standards
established by USPAP as published the Appraisal
Standards Board (ASB) of The Appraisal Foundation.
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Whose qualifications must comply with those set by
the Appraiser Qualifications Board (AQB) of The
Appraisal Foundation.
Covered in more detail in Chapter 18
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1.4 USING THIS TEXT
How Will the Format of this Book Help You?
• Preview of material to be covered
• Student Learning Outcomes
• Chapter Content Itself (detailed discussions)
• Chapter Summary
• List of Important Terms and Concepts
• Reviewing Your Understanding Questions
(answers on Page 622)
• Practical Application - Appraisal Exercises (most
chapters) leading to the production of an Appraisal
using the URAR appraisal report form – helpful
whether or not you use the ClickFORMS software.
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CHAPTER SUMMARY
• An appraisal is simply an opinion or
estimate of value.
• Points out the importance of formal
appraisals vs. informal appraisals.
• Outlines types of market and legal
transactions necessitating appraisals.
• Summarizes the obligations placed on
licensed/certified appraisers by USPAP to
ensure professionalism.
• Reasons for studying appraisal.
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IMPORTANT TERMS & CONCEPTS
Appraisal
Jurisdictional Exception Rule
Appraisal Report
Legal Transactions
Appraisal Standards
Market Transactions
BPO
Market Value
Broker Price Opinion
Property Taxation
Competency Rule
Real Estate
Eminent Domain
Record Keeping Rule
Ethics Rule
Scope of Work Rule
Formal Appraisal
Uniform Standards of Professional Appraisal Practice
Highest & Best Use
Value
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Informal Appraisal
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