Chapter 18 Real Estate Appraisal

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Chapter 18Real Estate Appraisal

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Appraisals

• Appraisal An opinion of value that is documented
  (it can be oral or written). Compare with an
  estimate
• Reasons/Uses of Appraisals
• -sale (transfer title)
• -financing
• -taxation
• -insurance
• -condemnation

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Three approaches to Value

• Market comparable sales data
• Cost construction cost plus land value
• Income monetary returns of property capitalized

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Valuing a House Market Comparison Approach
2,960
-2,700
-7,560
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Costs Approach to Value
Step 1 Estimate land as vacant
30,000 Step 2 Estimate new construction
cost of similar building 120,000 Step 3
Less estimated depreciation -12,000 Step 4
Indicated value of building
108,000 Step 5 Appraised property value
138,000 by the cost approach
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Square-foot Method of Cost Estimating
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Income Approach
Variation by Direct Capitalization
Income / Rate Value
18,000 / 0.09 200,000
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Principles of Value

• scarcity
• utility
• transferability
• desirability
• Note Usually use market value but other
  values tax, insurance, etc.
• Most values based on highest and best use.

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Depreciation

• Physical
• Functional
• Economic