Fundamentals of Real Estate Appraisal

by Ventolo, William L.; Williams, Martha R.

• ISBN13: 9780793142705
• ISBN10: 0793142709
• Edition: 8th
• Format: Paperback
• Copyright: 2001-06-01
• Publisher: Kaplan

Summary

Fundamentals of Real Estate Appraisal, 8th Edition contains all the tools you need to understand today's ever-changing appraisal marketplace. The book includes: An Internet Appendix containing Web site addresses useful for all appraisers; Free Appraise-It software for hands- on practice filling out electronic appraisal forms; and over 65 exercises and 15 Achievement exams to test your appraisal knowledge. Pass your exam the first time with this study guide designed specifically for the appraisal licensing exam.

Table of Contents

About the Authors	ix
Preface	x
Acknowledgements	xi
The Appraisal Profession	1	(18)
Overview	1	(1)
The Appraiser's Work	1	(4)
Qualifications of an Appraiser	2	(1)
Exercise 1.1	3	(1)
Assignments Available	3	(1)
Employments Opportunities	4	(1)
Appraiser Compensation	5	(1)
Exercise 1.2	5	(1)
Licensing and Certification	5	(1)
FIRREA	6	(2)
Appraiser Licensing	7	(1)
The Appraiser Foundation	7	(1)
Other Federal Regulation	8	(2)
Fair Housing	8	(1)
Environmental Concerns	8	(1)
Professional Standards of Practice	8	(1)
Exercise 1.3	9	(1)
Professional Societies	10	(2)
The Modern Appraisal Office	12	(4)
Summary	16	(1)
Achievement Examination 1	17	(2)
Real Estate and Its Appraisal	19	(21)
Overview	19	(1)
Basic Concepts	19	(4)
What is a Real Estate Appraisal?	19	(1)
Real Estate and Real Property	20	(2)
Personal Property	22	(1)
Exercise 2.1	23	(1)
Legal Descriptions of Land	23	(4)
Lot and Block System	23	(1)
Metes and Bounds System	24	(1)
U.S. Government Survey System	25	(1)
Exercise 2.2	26	(1)
Legal Rights and Interests	27	(2)
Freehold Estates	27	(1)
Nonfreehold Estates	28	(1)
Other Interests	28	(1)
Forms of Property Ownership	29	(5)
Individual Ownership	29	(1)
Co-Ownership	30	(2)
Other Forms of Ownership	32	(1)
Special Forms of Ownership	33	(1)
Exercise 2.3	33	(1)
Transfer of Title	34	(3)
Types of Deeds	34	(2)
Recordation	36	(1)
Exercise 2.4	36	(1)
Summary	37	(1)
Achievement Examination 2	38	(2)
The Real Estate Marketplace	40	(19)
Overview	40	(1)
The Market for Real Estate	40	(8)
Characteristics of Real Estate Markets	41	(1)
Market Analysis	42	(1)
The Cost of Credit	42	(1)
How Real Estate is Financed	43	(1)
Elements That Create Value	44	(3)
Influences on Real Estate Value	47	(1)
Exercise 3.1	48	(1)
Basic Value Principles	48	(8)
Anticipation	48	(1)
Balance	48	(1)
Change	49	(1)
Competition	50	(1)
Conformity, Progression, and Regression	50	(1)
Contribution	51	(1)
Externalities	51	(1)
Four Agents of Production	51	(1)
Growth, Equilibrium, Decline, and Revitalization	51	(1)
Highest and Best Use	52	(1)
Law of Increasing Returns and Law of Decreasing Returns	52	(1)
Opportunity Cost	53	(1)
Substitution	53	(1)
Supply and Demand	53	(1)
Surplus Productivity	54	(1)
Conclusion	54	(1)
Exercise 3.2	54	(2)
Summary	56	(1)
Achievement Examination 3	57	(2)
The Appraisal Process	59	(16)
Overview	59	(1)
Steps in the Appraisal Process	59	(4)
Beginning the Appraisal Process	63	(4)
Purpose and Use of the Appraisal	63	(1)
Interest(s) To Be Appraised	63	(1)
Date of the Value Estimate	63	(2)
Limiting Conditions	65	(2)
FHA Appraisals	67	(1)
Valuation Approaches	67	(4)
Sales Comparison Approach	67	(1)
Cost Approach	68	(1)
Income Capitalization Approach	69	(1)
Exercise 4.1	70	(1)
Relationship of Approaches	71	(2)
Exercise 4.2	72	(1)
Summary	73	(1)
Achievement Examination 4	73	(2)
Building Construction and the Environment	75	(32)
Overview	75	(1)
Planning and Design	76	(1)
Regulation of Residential Construction	76	(1)
Plans and Specifications	76	(2)
Building Measurement	77	(1)
House Styles	78	(2)
Traditional Styles	78	(2)
Contemporary Styles	80	(1)
House Types	80	(3)
Orientation: Locating the House on the Site	83	(2)
Topography	84	(1)
Facing to the South	84	(1)
View	84	(1)
Exercise 5.1	84	(1)
Construction Details	85	(1)
Foundations	86	(2)
Termite Protection	87	(1)
Radon Gas	87	(1)
Exterior Structural Walls and Framing	88	(4)
Exterior Walls	89	(2)
Insulation	91	(1)
Roof Framing	92	(1)
Exterior Trim	92	(1)
Exterior Windows and Doors	92	(5)
Types of Windows	92	(4)
Types of Doors	96	(1)
Interior Walls and Finishing	97	(1)
Plumbing	98	(1)
Plumbing Fixtures	99	(1)
Water Heater	99	(1)
Heating and Air-Conditioning	99	(1)
Electrical System	100	(4)
Power Requirements	101	(1)
Electric and Magnetic Feilds	102	(1)
Exercise 5.2	102	(2)
Basic Terms	104	(1)
Summary	104	(1)
Achievement Examination 5	105	(2)
Data Collection	107	(29)
Overview	107	(1)
State the Problem	107	(2)
Property Rights Conveyed	108	(1)
Exercise 6.1	109	(1)
List the Data Needed and the Sources	109	(1)
Gather, Record, and Verify the Necessary Data	109	(1)
The Data Source List	110	(5)
Kinds of Data Needed	110	(4)
Exercise 6.2	114	(1)
Data Forms	115	(11)
Neighborhood Data	116	(2)
Exercise 6.3	118	(3)
Site Data	121	(1)
Exercise 6.4	122	(1)
Building Data	123	(2)
Exercise 6.5	125	(1)
Data for Sales Comparison Approach	126	(7)
Recent Sales	127	(1)
Similar Features	127	(2)
Financing Terms	129	(2)
Arm's-Length Transactions	131	(1)
Sources of Data	131	(2)
Exercise 6.6	133	(1)
Summary	133	(1)
Achievement Examination 6	134	(2)
Site Valuation	136	(16)
Overview	136	(1)
Separate Site Valuations	136	(6)
Cost Approach	136	(1)
Assessments and Taxation	137	(1)
Condemnation Appraisals	137	(1)
Income Capitalization	137	(1)
Highest and Best Use	137	(5)
Exercise 7.1	142	(1)
Site Data	142	(1)
Environmental Concerns	142	(2)
Methods of Site Valuation	144	(6)
Exercise 7.2	145	(2)
Exercise 7.3	147	(1)
Exercise 7.4	148	(2)
Summary	150	(1)
Achievement Examination 7	150	(2)
The Cost Approach---Part I: Reproduction/Replacement Cost	152	(19)
Overview	152	(1)
Cost Approach Formula	152	(1)
Reproduction Cost Versus Replacement Cost	153	(1)
Exercise 8.1	154	(1)
Finding Reproduction/Replacement Cost	154	(14)
Index Method	155	(1)
Exercise 8.2	156	(1)
Square-Foot Method	156	(4)
Exercise 8.3	160	(1)
Unit-in-Place Method	161	(4)
Exercise 8.4	165	(1)
Quantity Survey Method	166	(2)
Exercise 8.5	168	(1)
Summary	168	(1)
Achievement Examination 8	169	(2)
The Cost Approach---Part II: Depreciation	171	(28)
Overview	171	(1)
Accrued Depreciation	171	(15)
Age-Life Method	175	(2)
Exercise 9.1	177	(1)
Observed Condition Method	178	(2)
Exercise 9.2	180	(1)
Capitalized Value Method	181	(1)
Exercise 9.3	182	(1)
Sales Comparison Method	183	(1)
Exercise 9.4	183	(1)
Itemizing Accrued Depreciation	183	(1)
Exercise 9.5	184	(1)
Exercise 9.6	185	(1)
Cost Approach Using the URAR From	186	(1)
Summary	186	(1)
Achievement Examination 9	187	(12)
The Sales Comparison Approach	199	(26)
Overview	199	(1)
Gather, Record, and Verify the Necessary Data (Continued)	199	(4)
Comparison Grid	199	(4)
Determine Highest and Best Use	203	(1)
Estimate Land Value	204	(1)
Estimate Value by Sales Comparison Approach	204	(13)
Data Analysis	204	(4)
Exercise 10.1	208	(1)
Exercise 10.2	209	(4)
Exercise 10.3	213	(1)
Net Adjustments	213	(3)
Exercise 10.4	216	(1)
Value Estimate	216	(1)
Exercise 10.5	216	(1)
Application of Sales Comparison Approach	217	(2)
Summary	219	(1)
Achievement Examination 10	219	(6)
The Income Capitalization Approach	225	(21)
Overview	225	(1)
The Income-Based Approaches to Appraisal	225	(1)
Income Capitalization and the Principle of Anticipation	225	(1)
Potential Gross Income	226	(7)
Rent	226	(3)
Exercise 11.1	229	(1)
Outside Economic Factors	229	(1)
Other Income	230	(1)
Exercise 11.2	230	(1)
Gross Income and Gross Rent Multipliers	231	(2)
Exercise 11.3	233	(1)
Effective Gross Income	233	(2)
Exercise 11.4	234	(1)
Net Operating Income	235	(8)
Classification of Operating Expenses	235	(1)
Expenses for Accounting Purposes versus Expenses for Appraisal Purposes	236	(1)
Reconstructing the Operating Statement	236	(1)
Exercise 11.5	237	(1)
Applying the GRM to Residential Properties	238	(3)
Income Approach Using the URAR From	241	(1)
Operating Statement Ratios	241	(1)
Exercise 11.6	242	(1)
Summary	243	(1)
Achievement Examination 11	243	(3)
Direct and Yield Capitalization	246	(27)
Overview	246	(1)
Direct Capitalization Formula	246	(1)
Capitalization Rate	247	(5)
Exercise 12.1	248	(1)
Building a Capitalization Rate	249	(1)
Selecting the Rate for Capital Recapture	250	(1)
Selecting the Interest Rate by the Market Extraction Method	251	(1)
Exercise 12.2	251	(1)
Band of Investment Method---Mortgage and Equity Elements	252	(1)
Relationship of Capitalization Rate and Risk	253	(1)
Exercise 12.3	253	(1)
Capitalization Techniques Using Residual Income	253	(4)
Building Residual Technique	254	(1)
Exercise 12.4	254	(1)
Land Residual Technique	255	(1)
Exercise 12.5	255	(1)
Valuing the Land and Building as a Whole	256	(1)
Exercise 12.6	256	(1)
Yield Capitalization	257	(1)
Value of One Dollar	257	(2)
Annuity Method of Capitalization	259	(6)
Building Residual Technique	260	(2)
Exercise 12.7	262	(1)
Valuing the Property as a Whole	263	(1)
Exercise 12.8	263	(2)
Recapture Rates	265	(1)
Exercise 12.9	266	(1)
Ellwood Tables	266	(1)
Summary	267	(1)
Achievement Examination 12	268	(5)
Reconciliation and the Appraisal Report	273	(42)
Overview	273	(1)
Definition of Reconciliation	273	(4)
The Process of Reconciliation	274	(1)
Exercise 13.1	274	(1)
Review of the Three Approaches	274	(2)
Weighing the Choices	276	(1)
Exercise 13.2	277	(1)
Reconciliation Is Not	277	(1)
Types of Appraisals	278	(1)
Types of Appraisal Reports	278	(1)
Styles of Written Appraisal Reports	279	(9)
Form Style Report	279	(1)
Form 2055	279	(1)
Narrative Style Report	280	(1)
Introduction	280	(4)
Suppositions of the Appraisal	284	(1)
Presentation of Data	285	(1)
Data Analyses and Conclusions	286	(2)
Supporting Material	288	(1)
Exercise 13.3	288	(1)
Sample Appraisal Report	288	(19)
Summary	307	(1)
Achievement Examination 13	307	(8)
Appraising Partial Interests	315	(11)
Overview	315	(1)
Types of Partial Interests	315	(3)
Condominiums	315	(1)
Planned Unit Developments	316	(1)
Time-Share Projects	316	(1)
Manufactured Homes	317	(1)
Other Forms of Ownership	317	(1)
Exercise 14.1	318	(1)
Appraising Lease Interests	318	(3)
Definition of Terms	318	(1)
Creation of Lease Interests	319	(1)
Exercise 14.2	320	(1)
Leased Fee and Leasehold Valuations	321	(3)
Exercise 14.3	324	(1)
Summary	324	(1)
Achievement Examination 14	325	(1)
Appraisal Math and Statistics	326	(28)
Overview	326	(1)
Calculators	326	(1)
Percents	327	(4)
Converting Percents to Decimals	327	(1)
Converting Decimals to Percents	327	(1)
Percentage Problems	328	(1)
Problem-Solving Strategy	329	(2)
Exercise 15.1	331	(1)
Interest	331	(3)
Simple Interest	331	(1)
Compound Interest	332	(2)
Exercise 15.2	334	(1)
Area and Volume	334	(13)
Area of Squares and Rectangles	335	(3)
Exercise 15.3	338	(1)
Area of Triangles	339	(1)
Exercise 15.4	340	(1)
Area of Irregular Closed Figures	340	(1)
Exercise 15.5	341	(1)
Living Area Calculations	342	(1)
Exercise 15.6	343	(1)
Volume	343	(3)
Exercise 15.7	346	(1)
Statistics	347	(4)
Population and Sample	347	(1)
Organization of Numerical Data	347	(1)
Measures of Central Tendency	348	(1)
Measures of Dispersion	349	(1)
Regression Analysis---An Old Technique with a New Use	350	(1)
Summary	351	(1)
Achievement Examination 15	351	(3)
Web Sites	354	(2)
Appendix: Uniform Standards of Professional Appraisal Practice	356	(30)
Glossary	386	(16)
Answer Key	402	(39)
Index	441