USACE REAL ESTATE SPD SWD NWD JOINT WORKSHOP San Diego, CA

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USACEREAL ESTATESPD / SWD / NWDJOINT
WORKSHOPSan Diego, CA
February 14-15, 2001
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A Professional Real Estate Appraiser

• One who is properly qualified to estimate value.
  
• To be considered competent, or an expert, one
  should have
• the ability to assemble and evaluate competently,
  the appropriate, adequate and pertinent data
• the necessary background and experience
  (particularly with respect to the type of
  property being appraised)
• the essential personal characteristics of
  integrity, sound judgement, and willingness to
  work
• a thorough familiarity with the stimuli
  motivating market action and reaction
• a thorough familiarity with techniques and
  methods of presentation.

Feb 14, 2001
One Team - One Corps - One Fight
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The Many Hats of an Appraiser

• Accountant, mathematician
• Mapping expert
• Engineer, architect, draftsman
• Financial analyst, investor
• Banker, lender
• Teacher
• Consultant
• Construction inspector
• Soil scientist
• Electrician, plumber
• Photographer

One Team - One Corps - One Fight
Feb 14, 2001
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What is an Appraisal?

• An unbiased estimate of the nature, quality,
  value, or utility of an interest in, or aspect
  of, identified real property.
• The act or process of estimating value.
• The purpose of an appraisal is the stated scope
  of an appraisal assignment, i.e., to estimate a
  defined value of any real property interest.
• Appraising is more of an art than a science.
• Appraisal does not determine value

Feb 14, 2001
One Team - One Corps - One Fight
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Operating Guidance

• P.L. 91-646
• FHWA/DOT Implementing Guidance, 49 CFR
• http//www.access.gpo.gov/nara/cfr/waisidx_00/49cf
  r24_00.html
• The YELLOW BOOK
• http//www.usdoj.gov/enrd/land-ack/
• ER 405-1-12, Chapter 4 APPRAISAL
• http//www.usace.army.mil/inet/usace-docs/eng-regs
  /er405-1-12/toc.htm
• USPAP
• https//www.appraisalfoundation.org/uspap2001/toc.
  htm

Feb 14, 2001
One Team - One Corps - One Fight
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Operating Guidance (continued)

• FPMRs
• 41 CFR 101-47.303-4 and 47.304-9
• 41 CFR 101-18
• SPECIAL LEGISLATION
• OTHER DOD GUIDANCE, ARs, AND ERS
• CUSTOMER POLICIES
• EPA requirement to release appraisals

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One Team - One Corps - One Fight
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Market Value Definitions

• Market Value The amount in cash, or on terms
  reasonably equivalent to cash, for which in all
  probability the property would have sold on the
  effective date of the appraisal, after a
  reasonable exposure time on the open competitive
  market, from a willing and reasonably
  knowledgeable seller to a willing and reasonably
  knowledgeable buyer, with neither acting under
  any compulsion to buy or sell, giving due
  consideration to all available economic uses of
  the property at the time of the appraisal. (per
  The Yellow Book - 2000)
• Market Value The most probable price, as of a
  specified date, in cash, or in terms equivalent
  to cash, for which the specified property rights
  should sell after reasonable exposure, in a
  competitive market under all conditions requisite
  to a fair sale, with the buyer and seller each
  acting prudently, knowledgeably, and for
  self-interest, and assuming that neither is under
  undue duress. (per Appraisal Institute)

Feb 14, 2001
One Team - One Corps - One Fight
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Other Definitions

• Price the amount a particular purchaser agrees
  to pay and a particular seller agrees to accept
  under the circumstances surrounding their
  transaction.
• Cost the total dollar expenditure for labor,
  materials, legal services, architectural design,
  financing, taxes during construction, interest,
  contractors overhead and profit, and
  entrepreneurial overhead and profit.
• Cost as considered by appraisers, applies to
  production, not exchange, and is either an
  accomplished fact or a current estimate.
• Cost is considered the amount of money it takes
  to create something

Feb 14, 2001
One Team - One Corps - One Fight
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More Definitions

• Fee Simple Estate Absolute ownership
  unencumbered by any other interest or estate,
  subject only to the four powers of government.
• Those four powers of government
• Taxation
• Police power
• Escheat
• Eminent domain

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One Team - One Corps - One Fight
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Still More Definitions

• Leased Fee Estate an ownership interest held by
  a landlord, with the right of use and occupancy
  conveyed by lease to others the rights of lessor
  (the leased fee owner) and leased fee are
  specified by contract terms contained within the
  lease
• Leasehold Estate a real property interest held
  by a lessee (the tenant and renter) and conveying
  the right of use and occupancy for a stated term
  and under certain conditions

Feb 14, 2001
One Team - One Corps - One Fight
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Other Types of Value

• Value in Use
• Investment Value
• Going-concern Value
• Insurable Value
• Assessed Value
• Mortgage Value
• The appraisal industry is market value
  oriented, and bundle of rights oriented.

• Book Value
• Rental Value
• Liquidation Value
• Salvage Value
• Scrap Value
• Cost vs Market Value
• Price vs Market Value

One Team - One Corps - One Fight
Feb 14, 2001
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Factors of Value

• Utility
• Scarcity
• Desire
• Effective purchasing power
• Must have all four to maximize value

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Appraisal Principles Concepts

• Anticipation
• Change
• Supply and Demand
• Competition
• Substitution
• Opportunity Cost

• Balance
• Contribution
• Surplus Productivity
• Conformity
• Externalities

One Team - One Corps - One Fight
Feb 14, 2001
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Value Influences

• Anticipation - the perception that value is
  created by the expectation of benefits to be
  derived in the future
• Change - the result of the relationship between
  cause and effect that affects real property value
• Depreciation - a loss in property value from
  various causes.
• deterioration
• obsolescence
• Real estate markets are inefficient and inexact

Feb 14, 2001
One Team - One Corps - One Fight
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Highest Best Use

• defined as The reasonably probable use of vacant
  land or an improved property, which is legally
  permissible, physically possible, financially
  feasible, and results in the highest value
  (maximally productive).
• Highest Best Use is a fundamental concept in
  real estate appraisal
• it reflects a basic assumption about real estate
  market behavior - that the price a buyer will pay
  for a property is based on his conclusions about
  the most profitable use of the site or property

Feb 14, 2001
One Team - One Corps - One Fight
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The Valuation Process

• defined as A systematic procedure employed to
  provide the answer to a clients question about
  real property value.
• The appraisal assignment employs / requires the
  appraiser to act as a disinterested third party.

Feb 14, 2001
One Team - One Corps - One Fight
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The Valuation Process
Definition of the Problem
Identification of real estate
Identification of property rights to be valued
Use of appraisal
Definition of value
Date of value estimate
Description of scope of appraisal
Other limiting conditions
Preliminary Analysis and Data Selection and
Collection
General (Region, city neighborhood) Social Econo
mic Governmental Environmental
Specific (Subject comparables) Site
improvement Cost depreciation Income/expense
capitalization rate History of ownership use of
property
Competitive Supply Demand (The subject
market) Inventory of competitive properties Sales
listings Vacancies offerings Absorption
rates Demand studies
Highest and Best Use Analysis
Land as though vacant Property as
improved Specified in terms of use, time and
market participants
Land Value Estimate
Application of the Three Approaches
Sales (lease) comparison
Cost Income capitalization
Reconciliation of Value Indications and Final
Value Estimate
Report of Defined Value
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The Valuation Process
Definition of the Problem
Identification of real estate
Identification of property rights to be valued
Use of appraisal
Definition of value
Description of scope of appraisal
Other limiting conditions
Date of value estimate
Feb 14, 2001
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The Valuation Process
Preliminary Analysis and Data Selection and
Collection
General (Region, city neighborhood) Social Econo
mic Governmental Environmental
Specific (Subject comparables) Site
improvement Cost depreciation Income/expense
capitalization rate History of ownership use of
property
Competitive Supply Demand (The subject
market) Inventory of competitive properties Sales
listings Vacancies offerings Absorption
rates Demand studies

Feb 14, 2001
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The Valuation Process
Highest and Best Use Analysis
Land as though vacant Property as
improved Specified in terms of use, time and
market participants
Land Value Estimate

Feb 14, 2001
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The Valuation Process
Application of the Three Approaches
Sales (lease) comparison Cost Income
capitalization
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Elements of Comparison

• Property rights conveyed
• Financing terms
• Conditions of sale (motivation)
• Date of sale
• Location
• Physical characteristics
• Income producing characteristics
• Zoning
• Access

Feb 14, 2001
One Team - One Corps - One Fight
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The Valuation Process
Reconciliation of Value Indications and Final
Value Estimate
Report of Defined Value
Feb 14, 2001
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The Appraisal ReportReport of defined value

• Function of an appraisal report - to lead the
  reader from the definition of an appraisal
  problem to a specific conclusion, through
  reasoning and relevant descriptive and supportive
  data
• Importance -
• only product of the appraisers work received by
  the client
• may be read by third parties
• may be needed for months or years after
  completion
• Basis of the appraisers reputation
• needs professional appearance, quality built-in
• clear and meaningful photos, maps, exhibits

Feb 14, 2001
One Team - One Corps - One Fight
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Types of Reports

• Reconnaissance Scope Estimate - NOT an
  appraisal
• Recon
• Ballpark estimate
• Screening level estimate
• Gross Appraisal
• Abbreviated or Brief
• Standard, full or complete

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One Team - One Corps - One Fight
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Types of Reports (continued)

• Tract Appraisal
• Informal value estimates
• Form reports
• Brief appraisals
• Narrative report format (detailed)
• Complete appraisal, self-contained report
• Limited appraisal, self-contained report
• Complete or Limited , summary report
• Complete or Limited, restricted report

Feb 14, 2001
One Team - One Corps - One Fight
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What Can We Do Better?

• Be a TEAM PLAYER
• Early involvement
• Ask questions to facilitate assignments.
• Share lessons learned.
• Timely actions and response
• Utilize technology to our advantage.
• Conference calls
• E-mail and video teleconferencing (VTC)
• Electronic preparation and transfer of documents
• Provide appropriate training
• Marriage of Gross Appraisal Real Estate Plan

Feb 14, 2001
Needs Attention!
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WRAP - UP

• Comments
• Questions
• Suggestions

Feb 14, 2001
One Team - One Corps - One Fight