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Appraisal of Real Estate 15th Edition by Appraisal Institute, ISBN-13: 978-1935328780

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Appraisal of Real Estate 15th Edition by Appraisal Institute, ISBN-13: 978-1935328780

[PDF eBook eTextbook]

  • Publisher: ‎ Appraisal Institute (January 1, 2020)
  • Language: ‎ English
  •  721 pages
  • ISBN-10: ‎ 1935328786
  • ISBN-13: ‎ 978-1935328780

Why Appraisals Are Needed?

Appraisals are requested for as many different reasons as there are clients. All the scenarios outlined at the beginning of the chapter involve significant financial decisions that might require an appraisal and therefore an appraiser. Appraisals are often required by law, such as in many lending situations. Traditionally, appraisals for mortgage lending have been the bulk of work for appraisers of residential property, although the advent of automated valuation models (AVMs) in the 1990s has created competition in that market segment.

Changes in governmental regulations relating to mortgage lending can have a significant effect on the amount of work appraisers have. As another example, a condemning authority typically must retain an appraiser to value a property that is taken through the exercise of the governmental power of eminent domain as support for the amount of just compensation payable to the property owner. Indeed, in most situations in which the value of real property is contested in court, appraisals serve as primary support and appraisers are commonly summoned to testify as expert witnesses on matters relating to the value of real property.

When an appraisal is not required by law, it may be desired by a client because the appraiser’s opinion is objective and unbiased and the information about the value of real property will be useful in a financial decision. For example, a property owner might order an appraisal to set an offering price for the property that will attract buyers and would likely be competitive in the market without a significant marketing period.

Just as appraisers must be aware of the differences between types of property, they must also be able to identify which type of value is appropriate for the client’s needs. Like the interest to be appraised, the type of value sought must be identified and defined at the outset of an appraisal assignment. The most common appraisal assignments involve developing an opinion of market value, but many other types of value might be the focus of an appraisal such as:

• Use value

• Investment value

• Disposition value and liquidation value

• Assessed value

• Insurable value

• Fair value

The type and definition of value appropriate for a particular assignment will often be clear to experienced appraisers. Technical distinctions among the types and definitions of value listed above are discussed in Chapter 6.

Range of Uses of Appraisals

Transfer of Ownership:

• To help prospective buyers set offering prices

• To help prospective sellers agree on acceptable selling prices

• To establish a basis for real property exchanges

• To establish a basis for reorganizing or merging the ownership of multiple properties

• To determine the terms of a sale price for a proposed transaction Financing and Credit

• To develop an opinion of the value of the real property offered as collateral for a proposed mortgage loan

• To provide an investor with a sound basis for deciding whether to purchase real estate mortgages, bonds, or other types of securities

• To establish a basis for a decision to insure or underwrite a loan on real property

Litigation

Eminent domain proceedings:

• To develop an opinion of the market value of a property as a whole—i.e., before an acquisition

• To develop an opinion of the market value of the remainder after a partial taking

• To estimate the damages to a property created by a taking

Property divisions

• To develop an opinion of the market value of a property in contract disputes

• To develop an opinion of the market value of real estate as part of a portfolio

• To develop an opinion of the market value of partnership interests

Real estate litigation

• To estimate damages created by violations of environmental laws

• To estimate damages created by environmental accidents

• To estimate damages due to construction defects or defects in title

• To determine professional liability (of a broker, attorney, appraiser, or other professional)

• To help settle bankruptcy cases and the dissolution of business partnerships and marriages

Tax matters

• To develop an opinion of assessed value or another type of value

• To separate assets into depreciable (or capital recapture) items such as buildings and nondepreciable items such as land, and to estimate applicable depreciation (or capital recapture) rates

• To develop an opinion of the value of the real estate component of an estate plan that represents the foundation for future capital gains and inheritance taxes

• To develop an opinion of value used in determining gift or inheritance taxes

• To develop an opinion of value of conservation easements

Investment Counseling, Decision Making, and Accounting

• To develop an opinion of fair value for financial reporting

• To set rent schedules and lease provisions

• To determine the feasibility of a construction or renovation program

• To help an investor trade an interest in a corporation that holds real property

• To help corporations or third parties purchase homes for transferred employees

• To serve the needs of insurers, adjusters, and policyholders

• To facilitate corporate mergers, the issuance of stock, or the revision of book value

• To develop an opinion of liquidation value for forced sale or auction proceedings

• To counsel clients by considering their investment goals, alternatives, resources, constraints, and the timing of their activities

• To advise zoning boards, courts, and planners, among others, on the probable effects of proposed actions

• To assist in arbitrating valuation issues

• To analyze supply and demand trends in a market

• To identify the current status of real estate markets

• To value fixed assets and assist in asset value allocations

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