Real Estate Appraisal Forces that effect value (SEPP)

Appraisal or Valuation
– an estimate or opinion of value concerning real estate or other
property
– process of developing an estimate of value of an adequately
identified and described property as of specified and described
property as of specified date, supported by logical presentation
of factual and relevant data primarily based on personal
inspection of the property
1. Social – Population growth and decline, changes in family size
2. Economic – Availability of money and credit, price levels,
interest rates, tax burden, employment, wage levels
3. Political – Government regulations, rent controls, building
codes, police and fire regulations
4. Physical – Forces created by man or nature, climate and
topography, mineral resources, flood control, community factors
such as transportation, school, parks and recreation areas

Objectives of Appraisal Valuation Principles

Primary Purpose of Property Appraisal for Banks/ Financial 1. Anticipation – value tends to be set by the present worth of
Institutions: the future benefits or income that may be derived from the
1. Establish a Fair Market Value for the collateral offered in order ownership of the property
to arrive at a sound credit decision 2. Change – tomorrow will be different
2. Ensure a satisfactory return to the bank in the event of 3. Competition – profit creates competition
foreclosure and sale of acquired asset 4. Conformity – maximum value of a property is realized when a
reasonable degree of sociological, architectural and economic
Other Purposes: homogeneity is present
1. Sale and Disposition 5. Contribution – the value of the land is dependent on the
2. Taxation amount of net returns on investment on the building
3. Condemnation Proceedings 6. Highest and Best Use
4. Basis for Insurance 7. Substitution – equally desirable substitute property
5. Accounting and Property Records 8. Supply and Demand – interplay of economic forces affecting
market value
PRICE, COST and VALUE
Price Cost Value Legal Considerations in Appraisal (6)
Factual figures that are considered as Ownership of real estate is a direct function of constitutional
indicators of value guarantees.
-Actual amount -Actual amount -Relationship 1. Fundamental def
paid in a particular spent to build or between a thing
transaction put a property into desired and
-Term used for the being potential purchaser
amount asked, -Total cost of the -Economic concept
offered, or paid for property includes referring to price
a good or service all direct and most likely to be
-Generally an indirect costs concluded by the
indication of a -The amount of buyers and sellers
relative value money required to -Hypothetical price
placed upon goods create or produce
or services the good or service

Fair Market Value

 Highest price in terms of money which a property will bring
if exposed for sale in the open market
 A price that a willing seller would sell and a willing buyer
would buy, neither being under abnormal pressure

Sellers are pressured to sell under the following circumstances:

a. Expopriation
b. Foreclosure

Factors that create value (DUST)

1. Desirability – property must arouse the desire of buyer
2. Utility – must be useful to have value
3. Scarcity – object must have limited supply
4. Transferability – ownership of an object must be tranferrable