Chapter 8

Chapter 8 - Chapter 8 Valuation Using Sales Comparison and...

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Chapter 8 Valuation Using Sales Comparison and Cost Approaches 2/12/08 Appraisal - an unbiased written estimate of the fair market value of a property at a particular time. o Subject property - the property that is being appraised o Appraisal report - the document the appraiser submits to the client and contains the appraiser’s final estimate of value, the data upon which the estimate is based, and the calculations used to arrive at the estimate. o Why formal appraisals are necessary: Every property is unique Unique location Many and varied attributes Few transactions varied attributes o Large value of the asset makes errors costly. Who uses appraisals? o Buyers o Sellers o Corporate acquisitions, mergers or dissolutions o Courts Divorces Eminent domain cases Settlement of estates Bankruptcy o Mortgage lenders Market Value - the most probable selling price under “normal” market conditions’ the value that a “typical” market participant would place on the property. o Can be viewed as the value the typical participant would place on a property. o Appraisers typically estimate market value o The concept of market value rests upon the presence of willing buyers and sellers freely bidding in competition with one another. o *if RE markets were perfectly competitive, market values would equal the most recent transaction price. Investment Value - the value that a particular investor places on the property, the maximum price that a buyer would pay and the minimum that a seller would accept. o Investment values generally differ from market values because individual investors have different expectations regarding the future desirability of a property, different capabilities for obtaining financing, different tax situations and different return requirements. Transaction Price - what the property actually sells for or the prices we observe on
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sold properties. o RE appraisers and analysts observe these transactions prices and use them as factual evidence in making inferences and estimating the market value of similar properties The Appraisal Process: Appraisers are required to follow strict standards of ethics and standards. (and are required to be licensed) Uniform Standards of Professional Appraisal Practice (USPAP)- are required and
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This note was uploaded on 04/13/2008 for the course REAL 4000 taught by Professor Martin during the Spring '08 term at UGA.

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Chapter 8 - Chapter 8 Valuation Using Sales Comparison and...

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