fin353 process and reports

7/23/2019 FIN353 Process and Reports

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The Valuation ProcessThe Valuation Process

&&Appraisal ReportsAppraisal Reports

Wayne Foss, MBA, MAI, CRE

Foss Consulting Group

Email: wfoss@fossconsultcom


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Valuation ProcessValuation Process

!efinition:" A systematic proce#ure employe# to pro$i#e t%e answer to a clients

&uestions a'out t%e $alue of real property

(rocess %as many uses" pro$i#es a framewor) for estimating mar)et $alue *or ot%er types of

$alue+" pro$i#es a mo#el for performing

mar)et researc% analysis of #ata applying appraisal tec%ni&ues

" pro$i#es a c%ec)list for appraisers an# users of appraisal ser$ices" complies wit% t%e -niform .tan#ar#s of (rofessional Appraisal(ractice


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I#entification

of real estate

I#entification

of propertyrig%ts to 'e

-se of

appraisal

!efinition of

/alue

!ate of

$alueestimate

!escription

of scope ofappraisal

0t%er

limitingcon#itions

Reconciliation of Value Indications and Final Value Estimate

Report of Defined Value

1%e .u'2ect Mar)et.u'2ect an# Compara'lesRegion, City, 3eig%'or%oo#

Highest and Best Use Analysis

4an# as t%oug% $acant (roperty as impro$e#

.ales Comparison Income Capitali5ationCost

Application of the Three Approaches

Land Value Estimate

Definition of the ro!lem

The Valuation rocess

General .pecific Competiti$e .upply an# !eman#

reliminary Analysis and Data "election and #ollection


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Procedure:Procedure:Step OneStep One

!efinition of t%e (ro'lem" I#entification of:

t%e Client an# ot%er Inten#e# -sers t%e Inten#e# -se of t%e Appraisers 0pinions an# conclusions t%e (urpose of t%e Assignment

type an# #efinition of $alue #efinition of t%e &uestion to 'e answere# for t%e client limiting con#itions an#6or special assumptions

t%e Effecti$e !ate of t%e Appraisers 0pinion an# Conclusion .ets t%e 'asis of mar)et con#itions on t%e as7of #ate As7is or .u'2ect to *remo#eling, repair, p%ysical c%anges+

Current Retrospecti$e (rospecti$e .tatement of #ates

1wo #ates for eac% report: #ate of t%e opinion an# #ate of t%e report


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Procedure:Procedure:Step One conStep One contt

!efinition of t%e (ro'lem, cont" I#entification of:

t%e 'asic c%aracteristics of t%e property The Real Estate7 p%ysical entity8 #irt 9 'o 4ocation

Real Property Interestto 'e /alue# Bun#le of .tic)s8 w%ic% rig%ts are to 'e inclu#e# in t%e $aluation

Fee .imple, 4ease# Fee or 4ease%ol#

W%ole Interest

(artial or Fractional Interest Any personal property, tra#e fitures or intangi'le items

Easements, Restrictions, Encum'rances, 4eases etc .cope of Wor) 3ecessary to Complete t%e Assignment Any Etraor#inary Assumptions Any ;ypot%etical Con#itions 0t%er 4imiting Con#itions


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Procedure:Procedure:Step TwoStep Two

(reliminary Analysis an# !ata .election an#Collection" (lan t%e Wor) .c%e#ule" .election an# Collection of !ata

General !ata Economic, Go$ernmental an# En$ironmental forces .pecific !ata

.u'2ect property: 4an# an# Impro$ements Compara'le !ata:

4an# < Impro$e# .ales

Rental an# Capitali5ation Rate !ata" Competiti$e .upply an# !eman# !ata I#entification of t%e su'2ects mar)et

Geograp%ic, (roperty 1ype an# category (otential -sers, (otential Buyers


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Procedure:Procedure:Step ThreeStep Three

;ig%est an# Best -se Analysis A Four .tep (rocess

" 4egal -se" (%ysically (ossi'le

" Financially Feasi'le" Maimally (ro#ucti$e

Conclusions !e$elope# for" 4an# as 1%oug% /acant" (roperty As Impro$e#

Conclusion state# in terms of:" -se *W%ic% legal use pro#uces t%e %ig%est $alue+" 1iming for t%e -se" 1ypical Mar)et (articipants for t%e -se


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Procedure:Procedure:Step FourStep Four

4an# /alue Estimate" 3ee#e# for

1%e Cost Approac% Income Capitali5ation Resi#ual 1ec%ni&ues (roperty 1a Assessments

Con#emnation

.i (roce#ures to estimate 4an# /alue" .ales Comparison" Allocation" Etraction

" .u'#i$ision !e$elopment" 4an# Resi#ual 1ec%ni&ue" Groun# Rent Capitali5ation


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Land Value Estimate:Land Value Estimate:Sales Comparison ApproachSales Comparison Approach

"u!$ect Data %& Data %' Data %( Data %)

=>?? . Western ?@@ . Western ?>BW efferson ??> ./ermont D=B> .Western

03I3G: C?7>/4 C?7> C?B> CM7> C?7?

I31E3!E! -.E: Motel C%urc% Retail .tore ;ol#

.A4E !A1E: >?6>6?BB? >B6D6?BB? >>6>6?BB> ?6@6?BB>

.A4E. (RICE: ?,BBB ?=,BBB =?,BBB @BB,BBB

4A3! AREA *.F+: DD,DB ?=,HBB >>,HB? >=,=B >B,@D

(RICE6.F: 36A ?>?@ ?B= ?DD =HD

JJ A!-.1ME31.K JJ

CA.; EL-I/A4E3C BK BK BK 7?BK

MARNE1 C03!I1I03. BK BK BK BK

.A4E. C03!I1I03. BK BK BK BK

A!-.1E! 6 .F ?>?@ ?B= ?DD =DH

IMPROVEMENTS BK BK BK BK

40CA1I03 BK >BK 7?BK 7>BK

FR031AGE6EO(0.-RE K 7K BK 7DBK

(;.CIA4 FEA1-RE. K BK BK BK401 .IE: BK BK BK BK

101A4K A!: >BK K 7?BK 7=BK

A!-.1E! 6.F: ?DD ?> ?D=@ ?@?H

LA*D VALUATI+*,

E"TI-ATED

"UB.E#T /"F0 1 RI#E2 "F 3 VALUE R+U*DED

((45(6 7'(866 799546:6 79564666


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Land Value Estimate:Land Value Estimate:Allocation ApproachAllocation Approach

.u'2ect Area Area >

4ot /alue: 3o sales H,BBB

1otal /alue: ?BB,BBB DBB,BBB

(ctg 4an#: ?K

?BB,BBB ?K P B,BBB


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Land Value Estimate:Land Value Estimate:Extraction ApproachExtraction Approach

.ales (rice ?B,BBB

4ess Impro$ement /alue

Cost 3ew: ?BB,BBB

4ess !epreciation: B,BBB

!epreciate# Impro$ements: >B,BBB

4an# /alue >BB,BBB


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Land Value Estimate:Land Value Estimate:Subdivision DevelopmentSubdivision Development

A;erage "ales rice, 7(6>6? >6D>6? >>6D6? >?6D>6? >6D>6D ?6?6D

#ash Flo= from "ales,

(re7.ale 0pen Escrows:

1otal Mont%ly .ales Closings: > = = = ?

-nsol# -nits: >= > ?

Mont%ly Gross .ales Re$enue: D,>,> >,==, >,==, >,==, H?,D=

-onthly E>penses,

Real Estate 1aes: *=,>>+ *D,=D+ *?,?+ *H+ 7Insurance: *H+ *+ *D+ *>+ 7

Maintenance6;0A: *?,>+ *>,+ *+ *D+ 7

.ales < Mar)eting Costs: *?,>=+ *>>?,D?+ *>>?,D?+ *>>?,D?+ *,>D+

Entrepreneurial (rofit: *D>,>H+ *>=,=H+ *>=,=H+ *>=,=H+ *H,?D+

1otal Estimate# Costs: *D,==>+ *?,>+ *?,=+ *?D,>+ *>?,D+

*et -onthly #ash Flo=, ?,H,H?H >,>=, >,>=,HD >,>,?= H,

(resent Wort% Mont%ly Factor

at En# of (erio# 7 >K: >H D H= H= =

resent Value of

-onthly #ash Flo=s, ?,,>H >,>,=D >,>>,D> >,>>?,H ?,?

"ummation of #ash Flo=s4 hase II, 7?4?:(4


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Land Value Estimate:Land Value Estimate:Land Residual TechniqueLand Residual Technique

3et 0perating Income >,

4ess Income to Impro$ements

Impro$ement /alue: ,

Rate to Buil#ing *RB+ O>?K ,

Income to 4an# =,

4an# /alue =, >K P =,


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Land Value Estimate:Land Value Estimate:Ground Rent CapitalizationGround Rent Capitalization

Income to t%e 4an# >BB,BBB

Rate to t%e 4an# *R4+ >BK

4an# /alue >,BBB,BBB


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Procedure:Procedure:Step FiveStep Five

Researchw%ic% lea#s to t%e

Application of t%e 1%ree Approac%es

"Cost Approac%

".ales Comparison Approac%

"Income Capitali5ation Approac%


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Cost ApproachCost Approach

4an# an# Buil#ings

/alue is t%e sum total of cost to 'uy or createcomponent parts

.ummation concept

(%ysical Concept

Current Costs use#

a#2uste#to recogni5e #epreciation an# o'solescence" (%ysical #epreciation *imme#iate an#6or #eferre#+

" Functional 0'solescence *cura'le or incura'le+

" Eternal *always incura'le+


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Sales Comparison ApproachSales Comparison Approach

(remise: Current /alue is 'est in#icate# 'y recentsales prices of %ig%ly similar *compara'le+ property

/alue in Ec%ange Close# .ales are primary

4istings an# 0ffers are secon#ary

Buyer an# .eller 7 meeting of t%e min#s

Consi#ers t%e su'2ect as a %ypot%etical sale


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Income ApproachIncome Approach

/alue is t%e present wort% of anticipate# 'enefits

W%at it cost to create ma)es no #ifference

Estimate anticipate# 'enefits8 may 'e &ualitati$e or&uantitati$e

Estimate capitali5ationrate from mar)et information

/alue P Income Q Rate .o we apply t%e Rate to

epecte# Income 'enefits to fin# t%e present wort% or$alue of t%e property now


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Procedure:Procedure:Step SixStep Six

Reconciliation of /alue In#ications an# Final Estimateof /alue" Result in D #ifferent $alue in#ications" W%ic% one is rig%t" Appraiser nee#s > $alue estimate

All Approac%es to /alue:" Consi#er mar)et information" Rely on 2u#gement an# careful analysis" .imulate mar)et participant 'e%a$ior

" Result in a slig%tly #ifferent answer 'ecause mar)et informationis not perfect an# our a'ility to analy5e it is not perfect

These differences must be reconciled to a finalsingle value estimate amount


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Procedure:Procedure:Step SevenStep Seven

Report of !efine# /alue" -niform .tan#ar#s of (rofessional Appraisal (ractice

" 1%ree 1ypes of Report Formats .elf7Containe#

.ummary Restricte#

.upplemental .tan#ar#s" Co#e of (rofessional Et%ics < .tan#ar#s of (rofessional Appraisal

(ractice of t%e Appraisal Institute

" 0t%er Appraisal 0rgani5ations American .ociety of Appraisers American .ociety of Farm Managers < Rural Appraisers International Association of Assessing 0fficers International Rig%t of Way Association 3ational Association of In#epen#ent Fee Appraisers 3ational Association of master Appraisers


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ReportingReporting

-.(A( .tan#ar#s Rule ?7>

" Eac% written or oral real property appraisal report must Clearly an# accurately set fort% t%e appraisal in a manner t%at will not 'e

mislea#ing8

Contain sufficient information to ena'le t%e inten#e# users of t%eappraisal to un#erstan# t%e report properly8 an#

Clearly an# accurately #isclose all assumptions, etraor#inaryassumptions, %ypot%etical con#itions, an# limiting con#itions use# in t%eassignment


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Report ContentReport Content -.(A( .tan#ar#s Rule ?7?

" .tate t%e i#entity of t%e client an# any inten#e# users, 'y name or type" .tate t%e inten#e# use of t%e appraisal" !escri'e information sufficient to i#entify t%e real estate in$ol$e# in t%e

appraisal, inclu#ing t%e p%ysical an# economic property c%aracteristicsrele$ant to t%e assignment

" .tate t%e real property interest appraise#" .tate t%e type an# #efinition of $alue an# city t%e source of t%e #efinition" .tate t%e effecti$e #ate of t%e appraisal an# t%e #ate of t%e report" !escri'e t%e scope of wor) use# to #e$elop t%e appraisal" !escri'e t%e information analy5e#, t%e appraisal met%o#s an# tec%ni&ues

employe#, an# t%e reasoning t%at supports t%e analyses, opinions, an#conclusions8 eclusion of t%e sales comparison approac%, cost approac%, orincome approac% must 'e eplaine#8

" .tate t%e use of t%e real estate eisting as of t%e #ate of $alue an# t%e use oft%e real estate reflecte# in t%e appraisal8 an#, w%en an opinion of %ig%est an#

'est use was #e$elope# 'y t%e appraiser, #escri'e t%e support an# retionale fort%at opinion8" Clearly an# conspicuously:

.tate all etraor#inary assumptions an# %ypot%etical con#itions8 an# .tate t%at t%eir use mig%t %a$e affecte# t%e assignment results8 an#

" Inclu#e a signe# certification in accor#ance wit% .tan#ar#s Rule ?7D


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Appraisal MythsAppraisal Myths

ou can loo) up property $alue in a ta'le or'oo)

An appraisal $aluation amount is goo# forse$eral years

Goo# appraisals rely on formulas

1ec%ni&ues an# principles use# on onelocation can not 'e use# in anot%er location


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So Thats

1%e Appraisal (rocess

Wayne Foss, MBA, MAI, CRE, Fullerton, CA -.A

(%one: *H>=+ H>7D Fa: *H>=+ H>7>?D

Email: wfoss@fossconsultcom

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