Lecture 05 Investment Value and Appraisal - Feb 03 09

Lecture 05 Investment Value and Appraisal - Feb 03 09 -...

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1 Investment Value and Appraisal
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2 Fundamental Concepts Transaction Price. The price that initiates a transaction. Indisputable. Result of bargaining between buyer and seller. Most Probable Selling Price . Consider a distribution of prices. MPSP is the mean. Market Value . Slippery Term. Appraisers use this price interchangeably with MPSP. But market value assumes buyers and sellers are equal in strength and in knowledge. Assumes a typical buyer. Characteristics of Market Value Value in Cash or Equivalent Competitive Market Conditions Usual Financing Terms Arms Length Transaction Knowledgeable Buyer and Seller No Undue Duress Investment Value . Agent specific. The worth to the investor of the future stream of utility generated by the property. Tangible differences like tax bracket or risk aversion and intangible differences like aversion to the zoning process make each individual’s investment value different. Assumes a specific buyer. Transaction Range. The spread between the buyer’s and seller’s investment values. The property will trade in this range.
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Appraisal of Real Estate Appraisal is the analysis, opinion, conclusion relating to the nature, quality, value or utility of specified interests in or aspects of real estate. It is an estimate of Value. Why Appraise? Transfer of Ownership Financing and Credit Condemnation Taxes Accounting for Corporations Factors that Influence Valuation Utility (Demand) Scarcity (Supply) Desire (Demand) Effective Purchasing Power (Demand) Ultimately, it is supply and demand of general traits along with idiosyncratic traits of a particular property that drive value. The Valuation Process 1. Definition of the Problem o Identification of Real Estate o Describe the Property o Identification of Property Rights to be Valued o “Lease or Own”, Encumbrances, etc. o
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This note was uploaded on 04/05/2009 for the course UGBA 137 taught by Professor Staff during the Spring '08 term at University of California, Berkeley.

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Lecture 05 Investment Value and Appraisal - Feb 03 09 -...

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