Chapter 10
Property Valuation
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IN THIS CHAPTER
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Appraising is not an exact science.
The Appraisal Institute.
Basic appraisal principles.
Federal regulations for appraising.
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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.
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Classification of Appraisers
1. Limited Real Estate Appraiser
2. State Licensed Appraiser
3. Certified Residential Real Estate Appraiser
4. Certified General Real Estate Appraiser
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APPRAISAL
An appraisal is an estimate of value,
based upon factual data of a particular
property, at a particular time, for a
particular purpose.
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Valuation
Establishes an opinion of value utilizing a
totally objective approach.
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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.
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Types of Value
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Assessed value
Insurance value
Mortgage loan value
Condemnation value
Book value
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• 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.
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Characteristics of Real Property
1. effective demand
2. utility
3. scarcity
4. transferability
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Factors Affecting Value
1. physical
2. economic
3. social
4. governmental
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ECONOMIC VALUATION PRINCIPLES
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Highest and Best Use
Substitution
Supply and Demand
Conformity
Anticipation
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additional
ECONOMIC VALUATION PRINCIPLES
• Contribution
• Increasing Returns/Diminishing
Returns
• Competition
• Change
• Depreciation
• Age
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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.
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APPROACHES TO VALUE
• MARKET
• INCOME
• COST
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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
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