Chapter 10
Property Valuation
© 2015 OnCourse Learning
IN THIS CHAPTER
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Appraising is not an exact science.
The Appraisal Institute.
Basic appraisal principles.
Federal regulations for appraising.
MICHIGAN APPRAISAL LAW
• Defines appraisal as an opinion,
conclusion, or analysis relating to the
value of real property.
• Not included:
1. A market analysis performed by a person
licensed under Article 25.
2. An assessment of the value of real property
performed on behalf of a local unit of
government when performed by a properly
certified assessor.
Classification of Appraisers
1. Limited Real Estate Appraiser
2. State Licensed Appraiser
3. Certified Residential Real Estate Appraiser
4. Certified General Real Estate Appraiser
APPRAISAL
An appraisal is an estimate or opinion of
value, based upon factual data of a
particular property, at a particular time,
for a particular purpose.
Valuation
Establishes an opinion of value utilizing
a totally objective approach.
Market Value
The highest price in terms of money
which a property will bring in a
competitive and open market under all
conditions requisite to a fair sale, the
buyer and seller, each acting prudently,
knowledgeably and assuming the price
is not affected by undue stimulus.
Types of Value
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Assessed value
Insurance value
Mortgage loan value
Condemnation value
Book value
• A competitive market analysis (CMA)
is an analysis of the competition in
the marketplace that a property will
face upon sale attempts.
• This procedure is not an appraisal.
Characteristics of Real Property
1. Demand
2. Utility
3. Scarcity
4. Transferability
Factors Affecting Value
1. Physical
2. Economic
3. Social
4. Governmental
ECONOMIC VALUATION PRINCIPLES
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Highest and Best Use
Substitution
Supply and Demand
Conformity
Anticipation
additional
ECONOMIC VALUATION PRINCIPLES
• Contribution
• Increasing Returns/Diminishing
Returns
• Competition
• Change
• Depreciation
• Age
APPRAISAL PROCESS
1. Define the appraisal problem.
2. Obtain description of the property.
3. Inspect the area & the property.
4. Collect the data.
5. Analyze the data.
6. Correlate and reconcile the results
7. Prepare the appraisal report.
APPROACHES TO VALUE
• MARKET
• INCOME
• COST
CHAPTER TERMINOLOGY REVIEW
anticipation
appraisal
appraisal report
appraiser
assessed value
book value
capitalization formula
change
chronological age
comparables
comparison approach
competition
condemnation value
conformity
contribution
cost approach
cubic-foot method
depreciation
economic obsolescence
effective age
effective demand
evaluation
functional obsolescence
gross income multiplier (GIM)
gross rent multiplier (GRM)
income approach
insurance value
market data method
market value
mortgage loan value
narrative report
overimprovement
replacement cost
reproduction cost
scarcity
square-foot method
substitution
supply and demand
transferability
underimprovement
utility
valuation