The cost approach is a method of determining the value of real property that involves the construction costs of the building combined with the value of the land the improvements are on. When developing the cost approach, an appraiser typically uses a cost handbook such as the Marshall Swift Cost Handbook. There are other cost handbooks available, but the Marshall Swift Cost Handbook is the premier handbook that is recognized by the vast majority of appraisers in North America.
Below is a link to the Marshall Swift Cost Handbook Company.
Marshall Swift Cost Handbook
Cost handbooks are available for residential, commercial, and various other types of properties. Each cost handbook varies from the others, so to develop a value estimate that is most accurate, follow the given directions pertinent to each cost handbook.
When developing the value of a property from a cost handbook, it is important to remember to take into account the age of the property for depreciation purposes, and the condition of the property for deductions in maintenance related insufficiency issues. Another key element of developing the cost approach valuation is the inclusion of the land that the improvements sit upon.
May 1, 2010
The Sales Comparison Approach
When valuing real estate, there are many methods at your disposal to derive a value for the property. One commonly used method is the sales comparison approach.
The sales comparison approach utilizes recent sales of the most comparable properties in the area to derive a value for the subject property. The best comp available is the one that is across the street from the subject and sold yesterday. Once you have gathered three to five comparable sales, you can begin reconciling them to match the subject more closely.
This process is a simple add and subtract process that adjusts the comparable's prices based on the assets or qualities that they differ from when looking at the subject property. For example, if the only difference between a comp and the subject is square footage, you can calculate the square footage difference and add or subtract from the comp sale price if the subject has more or less square footage.
This method of value determination is a widely used practice that works best on residential properties. The sales comparison method is not typically used for properties that are unimproved (don't have land on them).
The easiest way to develop a sales comparison value is to construct a grid as shown below. It is adapted from the virtual appraisal website.
Sales Comparison Grid
Subject Sale #1 Sale #2 Sale #3
Sales Price
Distance
Date
Concessions
Land Area
View
Location
Quality
Type
Condition
Room Count
GLA
Basement
Bsmt Finish
Utility
Parking
Porches, etc
Heat/AC
Other
Total Adjustments
Indicated Price
The appraiser would simply fill out the information for the column on the left for the subject and each of the three comparables, then the reconciliation can begin.
The sales comparison approach utilizes recent sales of the most comparable properties in the area to derive a value for the subject property. The best comp available is the one that is across the street from the subject and sold yesterday. Once you have gathered three to five comparable sales, you can begin reconciling them to match the subject more closely.
This process is a simple add and subtract process that adjusts the comparable's prices based on the assets or qualities that they differ from when looking at the subject property. For example, if the only difference between a comp and the subject is square footage, you can calculate the square footage difference and add or subtract from the comp sale price if the subject has more or less square footage.
This method of value determination is a widely used practice that works best on residential properties. The sales comparison method is not typically used for properties that are unimproved (don't have land on them).
The easiest way to develop a sales comparison value is to construct a grid as shown below. It is adapted from the virtual appraisal website.
Sales Comparison Grid
Subject Sale #1 Sale #2 Sale #3
Sales Price
Distance
Date
Concessions
Land Area
View
Location
Quality
Type
Condition
Room Count
GLA
Basement
Bsmt Finish
Utility
Parking
Porches, etc
Heat/AC
Other
Total Adjustments
Indicated Price
The appraiser would simply fill out the information for the column on the left for the subject and each of the three comparables, then the reconciliation can begin.
Apr 20, 2010
Assessing the Condition of the Property
When you are looking at the subject property that you will be appraising there are several visual inspections that need to be made. You will look at everything from the general condition of the home to the interior details.
When looking at the exterior condition of the home you will need to visually inspect the foundation (if visible). The foundation could be made of concrete slab or cinder blocks. The primary clues you will be looking for include cracks, shifts, and other damages which will be obvious. Other exterior conditions you will need to inspect include the siding or veneer, the roof, the exterior doors, and the windows.
The veneer could be composed of wood, aluminum siding, vinyl siding, stone, or masonry. The condition of these materials are fairly easy to determine upon visual inspection. You want to look at whether or not there are any cracks, splits, missing sections, or extensive damage.
The doors could be made of wood, metal, glass or any combination of those materials. Once again, look for cracks, holes, and assure that the the doors all open and close easily with minimal rubbing and effort. All exterior doors should have functional knobs and locks. The roof should appear non distressed and could be composed of wood shingles, asphalt shingles, clay shingles, or other aggregate composite materials suitable for roofing in the market. Windows should all close and open easily and have functioning latches on the interior.
Once the exterior inspection is complete, you will need to inspect the interior of the home if possible. Inside the home, you should look at the walls and floors noticing any cracks, ripples, uneven areas, or extensive damages.
If the home appears to be in good overall condition, minimal adjustments will need to be made. Keep in mind that the condition of the home will depend greatly on the initial construction techniques, the age of the home, and the lifestyles of the homes previous inhabitants.
When looking at the exterior condition of the home you will need to visually inspect the foundation (if visible). The foundation could be made of concrete slab or cinder blocks. The primary clues you will be looking for include cracks, shifts, and other damages which will be obvious. Other exterior conditions you will need to inspect include the siding or veneer, the roof, the exterior doors, and the windows.
The veneer could be composed of wood, aluminum siding, vinyl siding, stone, or masonry. The condition of these materials are fairly easy to determine upon visual inspection. You want to look at whether or not there are any cracks, splits, missing sections, or extensive damage.
The doors could be made of wood, metal, glass or any combination of those materials. Once again, look for cracks, holes, and assure that the the doors all open and close easily with minimal rubbing and effort. All exterior doors should have functional knobs and locks. The roof should appear non distressed and could be composed of wood shingles, asphalt shingles, clay shingles, or other aggregate composite materials suitable for roofing in the market. Windows should all close and open easily and have functioning latches on the interior.
Once the exterior inspection is complete, you will need to inspect the interior of the home if possible. Inside the home, you should look at the walls and floors noticing any cracks, ripples, uneven areas, or extensive damages.
If the home appears to be in good overall condition, minimal adjustments will need to be made. Keep in mind that the condition of the home will depend greatly on the initial construction techniques, the age of the home, and the lifestyles of the homes previous inhabitants.
Feb 11, 2010
An in depth intro of things to consider
Today I will be discussing the beginning steps of data collection to begin the appraisal process.
To further iterate what I spoke about yesterday, appraisals are used for a wide variety of real estate transactions and concerns. Real estate appraisals are used primarily for the purpose of establishing worth or value during transactions such as purchases or sales, financing, leasing, management, and insurance. Some of the Legal Transactions that utilize appraisal values are condemner and condemnee values arising with eminent domain cases, property tax assessments, estate-inheritance-gift taxes, income taxes, personal and corporate legal actions, environmental impact reports, and marital and partnership dissolutions.
Now that we know what an appraisal could be needed for, we will take a closer look at the role of the real estate appraiser. The appraiser is a licensed practitioner of property value determination whom abides by the Uniform Standards of Professional Appraisal Practice. These standards strictly regulate two primary functions that the appraiser performs: methods as to how the valuation is reached, and how the information gathered and processed are disclosed and to whom the info is disclosed.
Finally, we will begin the appraisal process.
First and foremost, an appraiser must define the appraisal problem.
1. Who is the client? Who is hiring me to perform this appraisal service?
2. What is the intended use of my opinion and appraisal conclusions?
3. What type and definition of value is being sought by the client? Market
value estimate?
4. What is to be the effective date of my appraisal?
5. What is the subject of the assignment? What am I appraising? What land
rights are to be included in this appraisal.
6. Are there any other stipulations or conditions pertinent to this
appraisal?
Once the problem is defined, you can begin a preliminary analysis and data selection and collection process.
In general you will want to look at the region, city, and neighborhood that the property is located in. Take into account pros and cons for categories such as social factors, economic benefits, governmental influences, and environmental factors. These factors are all important elements of a region and can have a substantial impact on the value of a property. For example, two identical homes, one near a county prison and manufacturing district will probably have a lower market value than that same home in an affluent neighborhood in a great school district.
Specific data that you will need to collect is that information that is pertinent to the subject property. Site elements and improvements should be noted, cost of the original construction less depreciated amount, income generation and expenses associated with the capitalization rate, history of property ownership, and the use of the property should all be taken into account when analyzing the impacting factors of the property value.
Next, we will want to determine what type of value we need to derive for the property. Market Price Value is defined as the most profitable price that a property will sell for if there are knowledgeable buyers and sellers as well as adequate exposure of the property to the market. The five conditions of a market value accurate sales price are:
1. typical motivation of buyer and seller
2. informed and educated parties to the sale
3. adequate market exposure of the property for sale
4. normal terms of sale
5. no special financing is utilized
Another form of value is the Assessed Value. Properties are assessed continually by county assessors for property tax purposes. Other values that are used, but will not be discussed in depth at this point in the blog, include: going concern value, insureable value, liquidation value, salvage value, and value in use. The previously listed values are not primarily used when appraising residential single family properties, thus they will be elaborated upon in future blog articles relating to more specific values.
For more about the appraisal process you can read ahead here.
That's all for now, I will pick up where I left off some time in the next weeks.
To further iterate what I spoke about yesterday, appraisals are used for a wide variety of real estate transactions and concerns. Real estate appraisals are used primarily for the purpose of establishing worth or value during transactions such as purchases or sales, financing, leasing, management, and insurance. Some of the Legal Transactions that utilize appraisal values are condemner and condemnee values arising with eminent domain cases, property tax assessments, estate-inheritance-gift taxes, income taxes, personal and corporate legal actions, environmental impact reports, and marital and partnership dissolutions.
Now that we know what an appraisal could be needed for, we will take a closer look at the role of the real estate appraiser. The appraiser is a licensed practitioner of property value determination whom abides by the Uniform Standards of Professional Appraisal Practice. These standards strictly regulate two primary functions that the appraiser performs: methods as to how the valuation is reached, and how the information gathered and processed are disclosed and to whom the info is disclosed.
Finally, we will begin the appraisal process.
First and foremost, an appraiser must define the appraisal problem.
1. Who is the client? Who is hiring me to perform this appraisal service?
2. What is the intended use of my opinion and appraisal conclusions?
3. What type and definition of value is being sought by the client? Market
value estimate?
4. What is to be the effective date of my appraisal?
5. What is the subject of the assignment? What am I appraising? What land
rights are to be included in this appraisal.
6. Are there any other stipulations or conditions pertinent to this
appraisal?
Once the problem is defined, you can begin a preliminary analysis and data selection and collection process.
In general you will want to look at the region, city, and neighborhood that the property is located in. Take into account pros and cons for categories such as social factors, economic benefits, governmental influences, and environmental factors. These factors are all important elements of a region and can have a substantial impact on the value of a property. For example, two identical homes, one near a county prison and manufacturing district will probably have a lower market value than that same home in an affluent neighborhood in a great school district.
Specific data that you will need to collect is that information that is pertinent to the subject property. Site elements and improvements should be noted, cost of the original construction less depreciated amount, income generation and expenses associated with the capitalization rate, history of property ownership, and the use of the property should all be taken into account when analyzing the impacting factors of the property value.
Next, we will want to determine what type of value we need to derive for the property. Market Price Value is defined as the most profitable price that a property will sell for if there are knowledgeable buyers and sellers as well as adequate exposure of the property to the market. The five conditions of a market value accurate sales price are:
1. typical motivation of buyer and seller
2. informed and educated parties to the sale
3. adequate market exposure of the property for sale
4. normal terms of sale
5. no special financing is utilized
Another form of value is the Assessed Value. Properties are assessed continually by county assessors for property tax purposes. Other values that are used, but will not be discussed in depth at this point in the blog, include: going concern value, insureable value, liquidation value, salvage value, and value in use. The previously listed values are not primarily used when appraising residential single family properties, thus they will be elaborated upon in future blog articles relating to more specific values.
For more about the appraisal process you can read ahead here.
That's all for now, I will pick up where I left off some time in the next weeks.
Feb 10, 2010
Why Real Estate Appraisal?
Land is a valuable resource that they're not making any more of. Because we cannot make more land, we buy and sell what land there is. Land ownership is a great accomplishment that often comes with a hefty price. When you are considering the purchase of real estate in the future, you will probably be advised to get an appraisal of the building and land prior to purchase. Enter the Real Estate Appraiser, a professionally licensed individual that has the tools and knowledge necessary to evaluate the property and calculate a suggested value price.
This blog will walk you (the reader) through the steps that an appraiser goes through when appraising a residential single family home. Once a week, I will be updating the blog with new steps, explanations, and processes each week as we work toward completing the appraisal of a residential single family dwelling in Fayetteville, Arkansas. Please remember that I am a student just as you are, and while I will be posting about the appraisal process, I claim to be no expert nor do I hold a certification or license in the topic field of this blog.
I have enabled reader comments to be added, if you have any questions or advice please comment. I will not tolerate any vulgarity, or inappropriate commentary. Thanks.
That said, let the process begin.
Look for the first steps to appraising a residential single family dwelling in the next week or so.
This blog will walk you (the reader) through the steps that an appraiser goes through when appraising a residential single family home. Once a week, I will be updating the blog with new steps, explanations, and processes each week as we work toward completing the appraisal of a residential single family dwelling in Fayetteville, Arkansas. Please remember that I am a student just as you are, and while I will be posting about the appraisal process, I claim to be no expert nor do I hold a certification or license in the topic field of this blog.
I have enabled reader comments to be added, if you have any questions or advice please comment. I will not tolerate any vulgarity, or inappropriate commentary. Thanks.
That said, let the process begin.
Look for the first steps to appraising a residential single family dwelling in the next week or so.
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