APPRAISAL ACTIVITIES1. COLLECTION OF PERTINENT DATA.

2. INSPECTION OF THE SUBJECT PROPERTY, COMPARABLE SALES, THE AREA AND NEIGHBORHOOD.

3. ORGANIZATION AND ANALYSIS OF THE DATA TO ARRIVE AT A VALUE OPINION FOR THE SUBJECT PROPERTY.

THE VALUATION PROCESS

THE VALUATION PROCESS IS A SYSTEMATIC PROCEDURE EMPLOYED TO PROVIDE THE ANSWER TO A CLIENT’S QUESTION ABOUT REAL PROPERTY VALUE.

THE VALUATION PROCESS BEGINS WHEN THE APPRAISER IDENTIFIES THE APPRAISAL PROBLEM AND ENDS WITH THE APPRAISAL REPORT.

BASIC STEPS TO THE VALUATION PROCESS

1. DEFINITION OF THE PROBLEM.

2. PRELIMINARY ANALYSIS AND DATA SELECTION AND COLLECTION.

3. HIGHEST AND BEST USE ANALYSIS.

4. LAND VALUE ESTIMATE.

5. APPLICATION OF THE THREE APPROACHES TO VALUE.

6. RECONCILIATION OF VALUE INDICATIONS AND FINAL VALUE ESTIMATE.

7. REPORT OF DEFINED VALUE.

DEFINITION OF THE APPRAISAL PROBLEM

1. IDENTIFICATION OF THE REAL ESTATE. LOCATION LEGAL DESCRIPTION

2. IDENTIFICATION OF PROPERTY RIGHTS TO BE VALUED.

VALUE OF A FEE SIMPLE ESTATE OR PARTIAL INTEREST.

WITH OR WITHOUT MINERAL INTEREST.

3. USE OF THE APPRAISAL.

4. DEFINITION OF VALUE. SPECIFICATION OF THE TYPE OF VALUE BEING

ESTIMATED. A WRITTEN STATEMENT OF THE DEFINED VALUE.

5. DATE OF VALUE ESTIMATE. AN ESTIMATE OF VALUE IS CONSIDERED VALID ONLY

FOR THE EXACT DATE SPECIFIED. CURRENT VALUE OR VALUATION AT SOME PAST

DATE.

6. DESCRIPTION OF SCOPE OF APPRAISAL. THE SCOPE REFERS TO THE EXTENT OF THE

PROCESS IN WHICH DATA ARE COLLECTED, CONFIRMED, AND REPORTED.

THIS DESCRIPTION PROTECTS THIRD PARTIES WHOSE RELIANCE ON AN APPRAISAL REPORT MAY BE AFFECTED BY THIS INFORMATION.

7. OTHER LIMITING CONDITIONS. INCLUDED IN THE REPORT FOR THE APPRAISER’S

PROTECTION. EXAMPLES:

STATEMENT THAT NO ENVIRONMENTAL APPRAISAL WAS MADE.

STATEMENT SPECIFYING THAT NO SURVEY WAS CONDUCTED.

OTHER STATEMENTS MAY RELATE TO THE ASSUMED ACCURACY OF DATA USED IN THE APPRAISAL.

PRELIMINARY ANALYSIS AND DATA SELECTION AND COLLECTION

1. GENERAL: SOCIAL ECONOMIC GOVERNMENTAL ENVIRONMENTAL

2. SPECIFIC: SITE AND IMPROVEMENTS COST AND DEPRECIATION INCOME AND CAPITALIZATION RATE

3. COMPETITIVE SUPPLY AND DEMAND: THE MARKET FOR THE SUBJECT PROPERTY INVENTORY OF COMPETITIVE PROPERTIES SALES AND LISTINGS

HIGHEST AND BEST USE ANALYSIS

1. LAND AS THOUGH VACANT: THE USE OF THE PROPERTY THAT GIVES THE

HIGHEST VALUE WITHOUT CONSIDERATION OF ANY IMPROVEMENTS THAT MAY EXIST ON THE LAND.

2. PROPERTY AS IMPROVED: THE USE OF THE PROPERTY THAT GIVES THE

HIGHEST VALUE WITH CONSIDERATION OF ANY IMPROVEMENTS THAT MAY EXIST ON THE LAND.

LAND VALUE ESTIMATE

LAND VALUE IS DIRECTLY RELATED TO IT’S HIGHEST AND BEST USE.

LAND VALUE IS OFTEN ESTIMATED SEPARATELY FROM IMPROVEMENTS.

MANY APPRAISALS MAY REQUIRE A SEPARATE VALUATION OF LAND. ALSO, IN THE COST APPROACH THE VALUE OF LAND MUST BE ESTIMATED AND STATED SEPARATELY.

MEANS OF ESTIMATING LAND VALUE

1. SALES COMPARISON: COMPARISON OF SALES OF SIMILAR, VACANT

LAND.

2. ALLOCATION: ALLOCATION OF THE PRICE PAID FOR

IMPROVED PROPERTIES BETWEEN THE LAND AND IMPROVEMENTS USING A RATIO OR ISOLATING THE VALUE CONTRIBUTION OF THE IMPROVEMENTS USING COMPARISON ANALYSIS.

3. EXTRACTION: SUBTRACTING THE ESTIMATED VALUE OF THE

IMPROVEMENTS FROM THE KNOWN SALE PRICE OF THE PROPERTY.

4. SUBDIVISION DEVELOPMENT: THE VALUE OF UNDEVELOPED LAND IS

ESTIMATED AS IF THE LAND WERE DEVELOPED AND SOLD.

5. LAND RESIDUAL TECHNIQUE: CAPITALIZATION OF THE ESTIMATED NET

INCOME IMPUTED TO THE LAND.

6. GROUND RENT CAPITALIZATION: CAPITALIZATION OF RENTAL RATES.

COST APPROACH

BASED ON THE PREMISE THAT AN INFORMED BUYER WOULD PAY NO MORE FOR A PROPERTY THAN THE COST OF THE LAND PLUS REPLACEMENT COST OF IMPROVEMENTS LESS APPLICABLE DEPRECIATION.

VALUE IS DERIVED BY ADDING THE ESTIMATED VALUE OF LAND TO THE CURRENT COST OF CONSTRUCTING A REPRODUCTION OR REPLACEMENT OF THE IMPROVEMENTS AND THEN SUBTRACTING THE AMOUNT OF DEPRECIATION FROM ALL CAUSES (DETERIORATION AND OBSOLESCENCE)

INCOME APPROACH

MEASURES THE PRESENT VALUE OF THE FUTURE BENEFITS OF OWNERSHIP OF THE PROPERTY.

V = I / R R = I / Vwhere: I = annual net cash flow

R = capitalization rateV = value

THE CAPITALIZATION RATE SHOULD BE DERIVED FROM THE RETURN FOR SIMILAR PROPERTIES. ( market derived capitalization rate)

SALES COMPARISON APPROACH

ESTIMATES THE DEGREE OF SIMILARITY OR DIFFERENCE BETWEEN THE SUBJECT PROPERTY AND THE COMPARABLE SALES.

DOLLAR OR PERCENTAGE ADJUSTMENTS ARE APPLIED TO THE SALE PRICE OF EACH COMPARABLE PROPERTY.

ADJUSTMENTS OF COMPARIABLE SALES BRING THEIR SALE PRICE RELATIVE TO THE SUBJECT PROPERTY.

MUST CONSIDER: LAND USE MIX PROPERTY RIGHTS CONVEYED TERMS OF SALE (FINANCING) CONDITION OF SALE MARKET CONDITIONS (DATE OF SALE) LOCATION LAND CHARACTERISTICS IMPROVEMENT CHARACTERISTICS OTHER