Real Estate Appraisal Topic One - The Appraisal Profession

The Appraisal Profession Real estate appraiser estimates value of real estate (land and/or buildings) Client can be individual, company, public agency, or real estate broker Client can be individual, company, public agency, or real estate broker Purpose of appraisal determines type of value sought by appraiser Purpose of appraisal determines type of value sought by appraiser Appraiser’s estimate of value made in letter or longer appraisal report Appraiser’s estimate of value made in letter or longer appraisal report

Appraiser’s Qualifications Education can include: Math/accounting Math/accounting Computer skills Computer skills Statistics Statistics Geography Geography Urban sociology Urban sociology Economics Economics Real estate Real estate Building construction Building construction

Experience gained by : Internship Internship Trainee position Trainee position Related real estate occupation, such as sales agent, property inspector, contractor, or builder. Related real estate occupation, such as sales agent, property inspector, contractor, or builder.

Appraisal Assignments Available Determine seller’s asking price Determine seller’s asking price Estate valuation Estate valuation Value in trade Value in trade Business property valuation in merger, acquisition, liquidation, or bankruptcy Business property valuation in merger, acquisition, liquidation, or bankruptcy Mortgage loan value Mortgage loan value Insurance value Insurance value Damages from construction defects or natural disaster Damages from construction defects or natural disaster Property, gift, or inheritance tax Property, gift, or inheritance tax Marital dissolution Marital dissolution Arbitration Arbitration Most profitable use Most profitable use Condemnation Condemnation

Employment Opportunities Sole practitioner (with/without support staff) or Staff appraiser for: Appraisal company Appraisal company Business that acquires land/buildings Business that acquires land/buildings Government agency Government agency Compensation based on time/expertise required and competition for appraisal services.

Licensing and Certification FIRREA—Financial Institutions Reform, Recovery, and Enforcement Act of 1989 Defined transactions that would require state-licensed or certified appraiser Defined transactions that would require state-licensed or certified appraiser Licensing/certification required as of January 1, 1993 Licensing/certification required as of January 1, 1993

Appraisal Foundation Appraiser Qualifications Board sets minimum qualifications for appraiser licensing and certification Appraiser Qualifications Board sets minimum qualifications for appraiser licensing and certification Appraisal Standards Board defines appraisal terms and sets minimum requirements for appraisal reports Appraisal Standards Board defines appraisal terms and sets minimum requirements for appraisal reports

USPAP Uniform Standards of Professional Appraisal Practice (USPAP) Published by the Appraisal Standards Board of the Appraisal Foundation

Professional Societies Appraisal Institute, formed by merger of American Institute of Real Estate Appraisers and Society of Real Estate Appraisers, awards MAI and SRA designations Appraisal Institute, formed by merger of American Institute of Real Estate Appraisers and Society of Real Estate Appraisers, awards MAI and SRA designations International Association of Assessing Officers International Association of Assessing Officers International Right of Way Association International Right of Way Association National Association of Independent Fee Appraisers, Inc. National Association of Independent Fee Appraisers, Inc.

Modern Appraisal Office Requires knowledge of: Hardware, including computer, digital camera, scanner, printer, and high-speed Internet access Hardware, including computer, digital camera, scanner, printer, and high-speed Internet access Appraiser-specific software that meets requirements of lender, Fannie Mae, other clients Appraiser-specific software that meets requirements of lender, Fannie Mae, other clients Internet for research and communication Internet for research and communication

End of Chapter One

Real Estate and Its Appraisal

USPAP definition of appraisal: The act or process of developing an opinion of value (USPAP Standard 1) The act or process of developing an opinion of value (USPAP Standard 1) An opinion of value (USPAP Standard 2) An opinion of value (USPAP Standard 2)

Real Estate and Real Property Real estate includes: Land Land Fixtures (attachments) to land Fixtures (attachments) to land Things incidental or appurtenant to land (easements, etc.) Things incidental or appurtenant to land (easements, etc.) Anything else considered immovable Anything else considered immovable Real property means same as real estate, or the “bundle of rights” of ownership, depending on the state where located.

Tests for Determining a Fixture Method of attachment Method of attachment Modification or customization for property Modification or customization for property Relationship of parties ?? Relationship of parties ?? Intention of person in placing item on land Intention of person in placing item on land Agreement of parties Agreement of parties What about trade fixtures?

Restrictions on Real Estate Public restrictions Taxation Taxation Eminent domain Eminent domain Police power to establish: Police power to establish: zoning ordinances, building codes, health codes, etc. Private restrictions Lien Lien Subdivision CC&Rs: Subdivision CC&Rs:conditions, covenants, and restrictions

Legal Descriptions See book for examples

Lot and Block System Also called lot, block and tract system and subdivision system Individual parcels are referred to by the tract, block and lot number by which they are identified in the subdivision map filed in the county recorder’s office Individual parcels are referred to by the tract, block and lot number by which they are identified in the subdivision map filed in the county recorder’s office City, county, book and page number, and date map recorded are also in the description City, county, book and page number, and date map recorded are also in the description

Metes and Bounds System Used primarily in eastern states Used primarily in eastern states Starts at point of beginning Starts at point of beginning Follows natural or artificial boundaries called bounds Follows natural or artificial boundaries called bounds For measured distances called metes For measured distances called metes May also reference individual monuments or markers May also reference individual monuments or markers

U.S. Government Survey System Also called section and township system and rectangular survey system Land area divided into townships measured and numbered from intersection of base line (east/west) and meridian (north/south) Land area divided into townships measured and numbered from intersection of base line (east/west) and meridian (north/south) Township = 36 sections Township = 36 sections Section = one square mile = 640 acres Section = one square mile = 640 acres

Legal Rights and Interests in Real Estate

Freehold estates Fee simple estate, highest form of ownership Fee simple estate, highest form of ownership Life estate Life estate Remainderman takes property on termination of life estate Reversion returns property to original owner Nonfreehold estates Leasehold estate owned by lessee (tenant) Leasehold estate owned by lessee (tenant) Leased fee estate owned by lessor (landlord) Leased fee estate owned by lessor (landlord)

Other Interests in Real Estate Easement Easement Easement appurtenant runs with the land Easement in gross does not run with the land License is a temporary right License is a temporary right Encroachment occurs when improvement extends to adjoining property Encroachment occurs when improvement extends to adjoining property

Forms of Property Ownership Individual ownership Separate ownership or ownership in severalty Separate ownership or ownership in severaltyCo-ownership Tenancy in common Tenancy in common Joint tenancy Joint tenancy Marital property Marital property –Community property –Tenancy by the entirety Tenancy in partnership Tenancy in partnership

Other Forms of Ownership Corporation Corporation –For profit--owned by shareholders –Nonprofit--owned by members Limited liability company (LLC) Limited liability company (LLC) Trust Trust – Land trust –Living trust –Real estate investment trust (REIT)

Special Forms of Ownership Condominium Condominium Exclusive ownership of specified airspace and interest in common Cooperative Cooperative Owners are shareholders in stock cooperative project, with right to exclusive occupancy of part of property Planned unit development Planned unit development Type of development and zoning designation with individually owner parcels and shared common areas

Types of Deeds Grant deed Grant deed Quitclaim deed Quitclaim deed Warranty deed Warranty deed Bargain and sale deed Bargain and sale deed Trust deed Trust deed Reconveyance deed Reconveyance deed Sheriff’s deed Sheriff’s deed Tax deed Tax deed Valid deed must be in writing and describe the parties and property. Grantor(s) must be legally capable of executing the deed and there must be a granting clause. Finally, the deed must be signed by grantor(s) and delivered to and accepted by the grantee.

Recordation Acknowledgment of the grantor’s signature entitles document to recording Acknowledgment of the grantor’s signature entitles document to recording Recording of document serves as notice to the world of the transfer of title Recording of document serves as notice to the world of the transfer of title