REAL ESTATE APPRAISAL AND YOU Chapter 1

Appraisal Appraisal report Appraisal standards Competency Rule Eminent domain Ethics Rule Formal appraisal Highest and best use Informal appraisal Jurisdictional Exception Rule Legal transactions Market transactions Market value Property taxation Real estate Record Keeping Rule Scope of Work Rule Uniform Standards of Professional Appraisal Practice Value 2 CHAPTER TERMS AND CONCEPTS

3 LEARNING OUTCOMES 1.Define the term appraisal. 2.Explain the difference between a formal and an informal appraisal, and between an appraisal and an appraisal report. 3.List the main uses of appraisals. 4.Outline the Ethics Standards of USPAP. 5.List several important reasons for studying appraisal.

4 WHAT IS AN APPRAISAL?

5 Value “..… the worth, usefulness, or utility of an object to someone for some purpose.”

6 Market Value “…. most probable selling price of a property in a competitive and open market. ”

7 We usually make an informal appraisal to judge if the prices are reasonable for items we purchase. The “market analysis” made by brokers and salespeople when listing or selling a given property is best described as an informal appraisal. Informal Appraisal

8 …..a means of reaching an opinion of value by the methodical collection and analysis of relevant market data most often reported in writing. Formal Appraisals

FORMAL VS. INFORMAL APPRAISALS 9

WHAT IS VALUE? Worth Usefulness Utility 10

WHO USES APPRAISALS? Purchase, Sale & Exchange Financing Leasing Management Insurance Remodeling 11 Market Transactions

WHO USES APPRAISALS? Development Feasibility Highest and Best Use Exercise of Purchase and Lease options 12 Market Transactions

WHO USES APPRAISALS? 13 Legal Transactions

WHO USES APPRAISALS? Eminent domain - condemnor and condemnee Property tax assessment and tax appeals cases Estate, inheritance, and gift taxes Income tax Casualty loss, deprecation basis and capital gains reporting Personal and corporate legal actions 14

WHO USES APPRAISALS? Environmental impact reports Fire or title insurance claims Marital and partnership dissolutions Landlord-tenant and property damage lawsuits 15

WHO USES APPRAISALS? Loan foreclosures Company liquidation or merger Bankruptcy Security for bail bonds 16

Ethics Rule 17 USPAP places ethical obligations on the appraiser.

USPAP Uniform Standards of Professional Appraisal Practice  Conduct o Impartiality, Objectivity, and Independence  Management o No undisclosed fees o No contingent values 18

USPAP Uniform Standards of Professional Appraisal Practice  Confidentiality – Report only to: o Client and authorized users o State licensing agencies and third parties authorized by law o A duly authorized professional peer review committee  Record Keeping o Keep work file for 5 years o Keep work file for 2 years after final disposition of any judicial proceeding where testimony was given. 19

ADDITIONAL USPAP RULES The Competency Rule  Need to be competent to appraise the property by the time you complete the appraisal report The Scope of Work Rule  The Appraiser Must: o Identify the Problem o Determine and Perform correct Scope of Work to produce Credible Assignment Results o Disclose in Report the Scope of Work 20

ADDITIONAL USPAP RULES Jurisdictional Exception Rule  Use when any part of USPAP is contrary to the law or public policy of any jurisdiction The Supplemental Standards Rule  Added requirements issued as policy or regulation by Government Agencies or similar bodies 21

APPRAISAL STANDARDS Standard 1:  Real Property Appraisal Development 22

APPRAISAL STANDARDS Standard 2:  Real Property Appraisal Reporting 23

SUMMARY 24 This chapter stressed that an appraisal is simply an opinion of value. Value generally means the worth or usefulness of something to someone for some purpose. Although there are many types of value, the purpose of most appraisals is to form an opinion of market value, or the price at which something should sell.