Summary: J - Principles Of Appraisal

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• 1 The Appraisal Profession

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• What are the 4 Types of Appraisal Assignments?

  1- Valuation
  2- Review 
  3- Consulting
  4- Management

• How many Types of Appraisal Report there are?

  1- Narrative Report
  2- Form Report
  3- Letter of Opinion
  4- Residential Market Comparison/ Comparative Market Analysis

• How Many Value Concepts there are?

  1- Objective value
  2- Subjective value
  3-Value in Exchange
  4- Market value
  5- Assumption of market value
  6- Market price
  7- Value in use
  8- Investment value

• What is Increasing/Decreasing Returns?

  
  • More is not necessarily better.
  • Successive addition of features may not keep on adding value and the returns reach a maximum value.
  • Also known as Principle of Variable Proportions or the Principle of Diminishing Returns.
  • Example: If having one garage in a house adds $15,000 to its value it is not necessary that having three garages would add $45,000 to the value.

• What is External Factors?

  
  • Things nearby can influence value.
  • Value is also affected by local economy, government regulations and nearby services or amenities.
  • Example: Owner Michael’s property is located in an area which is close to a big shopping mall. This has a positive effect on his property. Owner Jordan’s house is located in a different neighbourhood known for a high crime rate. This has a negative effect on the value of Jordan’s property.

• What is Supply and Demand?

  
  • Market forces are always at work.
  • If supply increases and demand decreases, values tend to fall.
  • If supply decreases but demand increases, values tend to rise.
  • Example: Assume that two large factories close down in some township resulting in lost jobs for several thousand employees. This may result in large scale exodus of people from the town and the market would be flooded with properties. This will pull the value of real estate down in the town.

• What is Surplus Productivity?

  
  • Net income flows to the land.
  • The net income of a property after paying off the operating expenses and improvements, establishes the value of land.
  • The three levels of return (labour, co-ordination and capital) which are necessary for the operation of a commercial property must be satisfied first.
  • The residual income is allocated to the fourth level, which is land.

• What are the types of interest in land?

  1- Fee Simple, (the highest right (generally considered absolute right) in real property and provides most rights with least limitations.)
  2-  Future estate, 
  3- Leasehold estate
  4- Life estate

• What are Purposes of Appraisal?

  
  1- Transfer of Ownership (Buying, selling or exchange of real estate.)
  2- Extension of Credit (mortgage financing.)
  3- Compensation for Damage or Loss (Insurance claims or compensation for expropriation.)
  4- Taxation (Municipal assessment for property tax and capital gains tax.)
  5- Land Use and Feasibility Studies (For developers and investors interested in a value for the highest and best use of a parcel of land.)

• What is Retroactive Appraisal?

  An appraisal where the Effective Date is a past date.