Modern Real Estate Practice in Illinois

Chapter 19: Real Estate Appraisal

© 2008 Dearborn Real Estate Education

Appraising

• Regulation of Appraisal Activities• Illinois Appraiser Categories

– Associate Real Estate Appraiser– Certified Residential Real Estate Appraiser– Certified General Real Estate Appraiser

• Comparative Market Analysis

© 2008 Dearborn Real Estate Education

Value

• Demand– The need or desire for possession ownership,

plus final capacity

• Utility – Usefulness for its intended purposes

• Scarcity – A finite supply

• Transferability– Relative ease with which ownership rights are

transferred from one person to another

© 2008 Dearborn Real Estate Education

Value

• Market Value versus Market Price• Market Value versus Cost

© 2008 Dearborn Real Estate Education

Value• Basic Principles of Value

– Anticipation– Change– Competition– Conformity– Contribution– Highest and Best Use– Increasing and Diminishing Returns– Plottage– Regression and Progression– Substitution– Supply and Demand

© 2008 Dearborn Real Estate Education

Three Approaches to Value

• Sales Comparison Approach– Opinion of value is obtained by comparing the

property being appraised (subject property) with recently sold comparable properties.

© 2008 Dearborn Real Estate Education

Three Approaches to Value

• Cost Approach– Reproduction cost– Replacement cost– Determining reproduction or replacement cost

new• Square-foot method• Unit-in-place method• Quantity-survey method• Index method

© 2008 Dearborn Real Estate Education

Three Approaches to Value

• Cost Approach (cont.)– Depreciation

• Physical deterioration• Functional obsolescence• External obsolescence• Straight line method

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Three Approaches to Value

• Income Approach– Gross rent or gross income multipliers

• Reconciliation– Art of analyzing and effectively weighing the

findings from the three approaches

© 2008 Dearborn Real Estate Education

The Appraisal Process

• The key to an accurate appraisal lies in the methodical collection and analysis of data– General Data

• Nation, region, city, and neighborhood

– Specific Data• Details of the subject property and comparables

• Appraiser’s Report