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Basic Appraisal Principles, Basic
Appraisal Concepts 2023
An appraisal is defined as (Dictionary of Real Estate Appraisal, 6th ed, 2015) The act or process of developing an opinion of value; an opinion of value. An appraisal must be numerically expressed as a specific amount, as a range of numbers, or as a relationship (e.g., not more than, more than, not less than, less than) to a specified amount. Characteristics of a good appraisal report Clear Concise Consistent Timely Accurate Well supported Clear exhibits Unbiased Pertinent Appropriate Assignment is defined as (USPAP definition) "a valuation service that is provided by an appraiser as a consequence of an agreement with a client." Client is defined as (USPAP definition) "The party or parties who engage, by employment or contract, an appraiser in a specific assignment." Comment: The client may be an individual, group, or entity, and may engage and communicate with the appraiser directly or through an agent. In certain situations, the client might request to not be identified in the appraisal report, and the appraiser may abide by the client's request and omit the client's identity from the report. However, in this situation, the appraiser must identify the client in the appraiser's workfile. Real Estate is defined as (The Dictionary of Real Estate Appraisal, 6th ed., 2015)
1. “An identified parcel or tract of land, including improvements, if any. (USPAP, 2016-2017 ed.)"
2. "Land and all things that are a natural part of the land, e.g., trees and minerals, as well as things that are attached to the land by people, e.g., buildings and site improvements. All permanent building attachments such as plumbing, heating and cooling systems; electrical wiring; and built-in items like elevators or lifts are also a part of real estate. Real estate includes all attachments, both below and above the ground.(IVS)" Land is defined as "1. In law, the solid surface on the earth, as distinguished from water.
- One of the four agents of production in economic theory." A somewhat longer and more explanatory definition of land appeared in the IVS Glossary of The Dictionary of Real Estate Appraisal, Fifth Edition (Appraisal Institute, 2010): "Valuation of land as if vacant, and of land and improvements to or on the land, is an economic concept. Whether vacant or improved, land is also referred to as real estate. The earth's surface, the space beneath which extends to the centre of the earth, and the space above which extends to the sky. The ownership of land and the rights attached to the ownership are subject to the laws of a particular State." Land Characteristics Unique Location, Immobility, Durability, Finite Supply, Unique Location Every parcel of land has its own unique location. Each differs in some aspect such as topography, access, subsoil, and orientation. Immobility This characteristic of immobility sets land apart from other economic assets. It is fixed in location and therefore a prisoner of its environment. It is particularly sensitive to its immediate surroundings. Durability Land is essentially durable and is classified as a long-lasting asset. It has a longer physical and economic life than many other assets. That is why it is possible to obtain 30-year mortgages. Finite Supply Another important characteristic of land is that there is a finite and limited supply. In many areas there is an increasing demand for land. If the supply is limited, that fact tends to drive prices upward. Subsurface rights are defined as
refrigerators or dryers, which typically have a shorter life than a house. If a lender did decide to loan on such items, it would be in the form of a chattel mortgage for maybe 3 to 5 years Appraisers may appraise personal property if they are knowledgeable and experienced in this area. (T/F) True -This is determined by the COMPETENCY RULE of USPAP. The appraisal of personal property is covered in STANDARDS 7 and 8 of USPAP. Trade Fixtures are defined as "Articles placed in or attached to rented buildings by a tenant to help carry out the trade or business of the tenant are generally regarded as trade fixtures. For example, a tenant's shelves used to display merchandise are trade fixtures and retain the character of personal property, as opposed to all other fixtures that were but are no longer personal property when they are attached to and become part of the real estate. Despite the consensus on the concept of trade fixtures in general, applicable law and custom govern when a specific item is a trade fixture in a particular assignment. Also called chattel fixture." Trade fixtures are found only in rented space and for use in non-residential (i.e., commercial or industrial) property. They are installed by the tenant and they may or may not remain after the expiration of the lease. That will depend on how the lease was written. Examples of trade fixtures are Shelving Display cases Bars Restaurant equipment Pizza ovens Real Property is defined as
- "An interest or interests in real estate.
- The interests, benefits, and rights inherent in the ownership of real estate. Comment: In some jurisdictions, the terms real estate and real property have the same legal meaning. The separate definitions recognize the traditional distinction between the two concepts in appraisal theory. (USPAP, 2016-2017 ed.)
- All rights, interests, and benefits related to the ownership of real estate. (IVS)" Real estate is the ____ and real property is the____ physical being, is the rights and benefits inherent in the ownership of real estate. Bundle of Rights Theory is defined as
"The concept that compares property ownership to a bundle of sticks with each stick representing a distinct and separate right of the property owner, e.g., the right to use real estate, to sell it, to lease it, to give it away, or to choose to exercise all or none of these rights." What do appraisers actually appraise? Real Property Real Property Rights is what is bought and sold in the marketplace The Bundle of Rights include Use the property Sell it Lease it Give it away Transfer it by will or trust Choose not to do anything Even though you may own a property free and clear with your whole bundle of rights, you still will be subject to certain public restrictions on your private property rights. These include: Taxation Eminent domain Police power Escheat All real property is subject to taxation Eminent Domain is defined as "The right of government to take private property for public use upon the payment of just compensation. The Fifth Amendment of the U.S. Constitution, also known as the takings clause , guarantees payment of just compensation upon appropriation of private property." / right of the government to take the property Condemnation is the process by which the government exercises this right of eminent domain Police power is defined as "The inherent power of government to regulate property in order to protect public health, safety, and general welfare."
Grantee Person who becomes the owner of a property Conditions, Covenants, and Restrictions (CC&R's) are defined as "A list of expressed assurances and limitations on land use; often found in contracts between a land subdivider and a lot purchaser. CC&Rs should be specified in the conveyance. Also referred to as conditions, covenants and restrictions or condominium covenants." CC&Rs vary considerably, but some of the more common ones might include restrictions on: Minimum building size Minimum building cost new Keeping of pets Keeping of livestock Whether or not recreational vehicles (RVs) can be stored in the driveway Real estate "For Sale" signs Political signs Outbuildings Clotheslines Antennas Satellite dishes Outdoor lighting Landscaping Storage sheds Another name for a trade fixture chattel fixture
