Real Estate AppraisalReal Estate Appraisal

Topic One - The Appraisal ProfessionTopic One - The Appraisal Profession

The Appraisal ProfessionThe Appraisal Profession

Real estate appraiser estimates value Real estate appraiser estimates value of real estate (land and/or buildings)of real estate (land and/or buildings)

• Client can be individual, company, Client can be individual, company, public agency, or real estate brokerpublic agency, or real estate broker

• Purpose of appraisal determines type Purpose of appraisal determines type of value sought by appraiserof value sought by appraiser

• Appraiser’s estimate of value made Appraiser’s estimate of value made in letter or longer appraisal reportin letter or longer appraisal report

Appraiser’s Appraiser’s QualificationsQualificationsEducation can include:Education can include:• Math/accountingMath/accounting

• Computer skillsComputer skills

• StatisticsStatistics

• GeographyGeography

• Urban sociologyUrban sociology

• EconomicsEconomics

• Real estateReal estate

• Building constructionBuilding construction

Experience gained byExperience gained by::

• InternshipInternship

• Trainee positionTrainee position

• Related real estate Related real estate occupation, such as occupation, such as sales agent, property sales agent, property inspector, contractor, or inspector, contractor, or builder.builder.

Appraisal Assignments Appraisal Assignments AvailableAvailable• Determine seller’s Determine seller’s

asking priceasking price

• Estate valuationEstate valuation

• Value in tradeValue in trade

• Business property Business property valuation in merger, valuation in merger, acquisition, acquisition, liquidation, or liquidation, or bankruptcybankruptcy

• Mortgage loan valueMortgage loan value

• Insurance valueInsurance value• Damages from Damages from

construction defects construction defects or natural disasteror natural disaster

• Property, gift, or Property, gift, or inheritance taxinheritance tax

• Marital dissolutionMarital dissolution• Arbitration Arbitration • Most profitable useMost profitable use• CondemnationCondemnation

Employment Employment OpportunitiesOpportunitiesSole practitionerSole practitioner (with/without support (with/without support

staff) orstaff) orStaff appraiserStaff appraiser for: for:

• Appraisal company Appraisal company • Business that acquires land/buildingsBusiness that acquires land/buildings• Government agencyGovernment agency

CompensationCompensation based on based on time/expertise required and time/expertise required and competitioncompetition for appraisal services. for appraisal services.

Licensing and Licensing and CertificationCertificationFIRREAFIRREA—Financial Institutions Reform, —Financial Institutions Reform,

Recovery, and Enforcement Act of 1989Recovery, and Enforcement Act of 1989

• Defined transactions that would require Defined transactions that would require state-licensed or certified appraiserstate-licensed or certified appraiser

• Licensing/certification required as of Licensing/certification required as of January 1, 1993January 1, 1993

Appraisal FoundationAppraisal Foundation

• Appraiser Appraiser Qualifications Qualifications BoardBoard sets sets minimum minimum qualifications for qualifications for appraiser licensing appraiser licensing and certificationand certification

• Appraisal Appraisal Standards BoardStandards Board defines appraisal defines appraisal terms and sets terms and sets minimum minimum requirements for requirements for appraisal reports appraisal reports

USPAPUSPAP

Uniform Standards of Professional Uniform Standards of Professional Appraisal Practice (USPAP)Appraisal Practice (USPAP)

www.appraisalfoundation.org www.appraisalfoundation.org Published by the Appraisal Standards Published by the Appraisal Standards

Board of the Board of the Appraisal FoundationAppraisal Foundation

Professional SocietiesProfessional Societies

• Appraisal Institute, Appraisal Institute, formed by merger formed by merger of American of American Institute of Real Institute of Real Estate Appraisers Estate Appraisers and Society of Real and Society of Real Estate Appraisers, Estate Appraisers, awards MAI and awards MAI and SRA designationsSRA designations

• International International Association of Association of Assessing OfficersAssessing Officers

• International Right International Right of Way Associationof Way Association

• National National Association of Association of Independent Fee Independent Fee Appraisers, Inc.Appraisers, Inc.

www.appraisalinstitute.org

Modern Appraisal OfficeModern Appraisal Office

Requires knowledge of:Requires knowledge of:

• Hardware, including computer, digital Hardware, including computer, digital camera, scanner, printer, and high-speed camera, scanner, printer, and high-speed Internet accessInternet access

• Appraiser-specific software that meets Appraiser-specific software that meets requirements of lender, Fannie Mae, other requirements of lender, Fannie Mae, other clientsclients

• Internet for research and communicationInternet for research and communication

End of Chapter OneEnd of Chapter One

Real Estate and Its Real Estate and Its AppraisalAppraisal

USPAP definition of USPAP definition of appraisal:appraisal:

• The act or process of developing an The act or process of developing an opinion of value (USPAP Standard 1)opinion of value (USPAP Standard 1)

• An opinion of value (USPAP Standard An opinion of value (USPAP Standard 2)2)

Real Estate and Real Real Estate and Real PropertyPropertyReal estateReal estate includes: includes:

• LandLand

• Fixtures (attachments) to landFixtures (attachments) to land

• Things incidental or appurtenant to land Things incidental or appurtenant to land (easements, etc.) (easements, etc.)

• Anything else considered immovableAnything else considered immovable

Real propertyReal property means same as real estate, means same as real estate, oror the “bundle of rights” of ownership, the “bundle of rights” of ownership, depending on the state where located.depending on the state where located.

Tests for Determining a Tests for Determining a FixtureFixture

• Method of attachmentMethod 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 landIntention of person in placing item on land

• Agreement of partiesAgreement of parties

What about What about trade fixturestrade fixtures? ?

Restrictions on Real Restrictions on Real EstateEstatePublic restrictionsPublic restrictions

• TaxationTaxation

• Eminent domainEminent domain

• Police power to Police power to establish:establish:

zoning ordinances,zoning ordinances,

building codes, building codes, health codes, etc.health codes, etc.

Private restrictionsPrivate restrictions

• LienLien

• Subdivision CC&Rs:Subdivision CC&Rs:

conditions,conditions,

covenants, andcovenants, and

restrictionsrestrictions

Legal DescriptionsLegal Descriptions

See book for examplesSee book for examples

Lot and Block SystemLot and Block System

Also called Also called lot, block and tract systemlot, block and tract system and andsubdivision systemsubdivision system

• Individual parcels are referred to by the Individual parcels are referred to by the tract, block and lot number by which they tract, block and lot number by which they are identified in the subdivision map filed are identified in the subdivision map filed in the county recorder’s officein the county recorder’s office

• City, county, book and page number, and City, county, book and page number, and date map recorded are also in the date map recorded are also in the descriptiondescription

Metes and Bounds Metes and Bounds SystemSystem• Used primarily in eastern statesUsed primarily in eastern states

• Starts at Starts at point of beginningpoint of beginning

• Follows natural or artificial boundaries Follows natural or artificial boundaries called called boundsbounds

• For measured distances called For measured distances called metesmetes

• May also reference individual May also reference individual monumentsmonuments or or markersmarkers

U.S. Government Survey U.S. Government Survey SystemSystemAlso called Also called

section and township systemsection and township system and and rectangular survey systemrectangular survey system

• Land area divided into Land area divided into townships townships measured and numbered from intersection measured and numbered from intersection of of base linebase line (east/west) and (east/west) and meridianmeridian (north/south)(north/south)

• Township = 36 sectionsTownship = 36 sections

• Section = one square mile = 640 acresSection = one square mile = 640 acres

Legal Rights and Interests in Real Legal Rights and Interests in Real EstateEstate

Freehold estatesFreehold estates• Fee simple estate, highest form of ownershipFee simple estate, highest form of ownership• Life estateLife estate

RemaindermanRemainderman takes property on takes property on termination of life estatetermination of life estateReversionReversion returns property to original owner returns property to original owner

Nonfreehold estatesNonfreehold 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 Other Interests in Real EstateEstate• EasementEasement

Easement appurtenantEasement appurtenant runs with the land runs with the land

Easement in grossEasement in gross does not run with the land does not run with the land

• LicenseLicense is a temporary right is a temporary right

• EncroachmentEncroachment occurs when improvement occurs when improvement extends to adjoining propertyextends to adjoining property

Forms of Property Forms of Property OwnershipOwnershipIndividual ownershipIndividual ownership• Separate ownership or ownership in severaltySeparate ownership or ownership in severalty

Co-ownershipCo-ownership• Tenancy in commonTenancy in common• Joint tenancyJoint tenancy• Marital propertyMarital property

– Community propertyCommunity property– Tenancy by the entiretyTenancy by the entirety

• Tenancy in partnershipTenancy in partnership

Other Forms of Other Forms of OwnershipOwnership• CorporationCorporation

– For profit--owned by For profit--owned by shareholdersshareholders– Nonprofit--owned by Nonprofit--owned by membersmembers

• Limited liability company (LLC)Limited liability company (LLC)

• TrustTrust– Land trustLand trust– Living trustLiving trust– Real estate investment trust (REIT)Real estate investment trust (REIT)

Special Forms of Special Forms of OwnershipOwnership• CondominiumCondominium

Exclusive ownership of specified airspace and Exclusive ownership of specified airspace and interest in commoninterest in common

• CooperativeCooperative

Owners are shareholders in stock cooperative project, Owners are shareholders in stock cooperative project, with right to exclusive occupancy of part of propertywith right to exclusive occupancy of part of property

• Planned unit developmentPlanned unit development

Type of development and zoning designation with Type of development and zoning designation with individually owner parcels and shared common areasindividually owner parcels and shared common areas

Types of DeedsTypes of Deeds

• Grant deedGrant deed

• Quitclaim deedQuitclaim deed

• Warranty deedWarranty deed

• Bargain and sale deedBargain and sale deed

• Trust deedTrust deed• Reconveyance deedReconveyance deed• Sheriff’s deedSheriff’s deed• Tax deedTax 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.

RecordationRecordation

• AcknowledgmentAcknowledgment of the grantor’s of the grantor’s signature entitles document to signature entitles document to recordingrecording

• RecordingRecording of document serves as of document serves as notice to the world of the transfer of notice to the world of the transfer of titletitle