Real Estate Appraisal

An appraisal is an estimate of market value.

Market value is the most probable selling price of a property.

Informal appraisal: from knowledge of comparable prices.

Example: a "market analysis" made by r.e. agents.

A "formal appraisal" has to be based on economic analysis.

Formal appraisals are presented via an "appraisal report".

Uses for appraisals:

To estimate rental income.

For a property exchange.

For insurance coverage.

To determine how much market value an improvement would add.

To estimate the highest and best use of a lot.

For eminent domain (a condemnation appraisal).

For property taxes.

For inheritance taxes.

To report a loss for insurance.

For a divorce or lawsuit.

In 1987, uniform appraisal standards were adopted by appraisal organizations.

The Uniform Standards of Professional Appraisal Practice, USPAP.

Appraisal methods:

Sales comparison of similar properties, with maps. Premiums for special locations, such as corner lots.

Property value is affected by zoning, easements, lot size and shape.

Cost method: cost of construction, minus real depreciation.

Income method: the rental income, capitalized into property value.

Need to take into account likely future increases.

Appraisals estimate the land value and the building value.

The land and the building are separate economic parts of the property.

The site is appraised as it it were vacant.

Needed for fire insurance, depreciation, and property taxes.

Types of property ownership.

Fee simple absolute: the most rights.

Fee simple qualified: limitations, such as deed restrictions.

Leasehold estate: rights of a tenant under a lease.

The landlord's rights are a leased fee.

In a life estate, when the owner dies, the property is transferred to the remainderman.

Historically, title to real estate was granted by the king as the sovereign body, subject to his conditions.

In the U.S., the citiezens collectively are the sovereign body.

The sovereign retains the rights of police powers, eminent domain, taxation, and escheat.

Police powers include all regulations, including zoning, building codes, rent control, and all restrictions, such as prohibiting drugs, setting store hours, and dictating the size of signs.

Eminent domain: government takes the property with just compensation.

Taxes: on real estate value or size or transfer.

Escheat: the sovereign body will take title if the owner dies with no heirs.