Module-2: Becoming an
Appraiser, Types of Value,
Influences on Value, and
Appraisal Reports
© 2024 Saddleback College
FIRREA
FIRREA stands for: Financial Institutions
Reform, Recovery, and Enforcement Act and
was passed after the Savings & Loan
financial crisis, and eventual bailout. It is a
federal law, but each state had to incorporate
the requirements of FIREEA into their license
and certification laws.
© 2024 Saddleback College
USPAP
USPAP (Uniform Standard of Appraisal Practice) –
a book which outlines the rules and standards of
appraising properties, business, and personal property.
The Appraisal Foundation is a non-profit organization
dedicated to promoting professionalism and ensuring the
public trust in the valuation profession. It oversees the
work of two independent boards: the Appraisal Standards
Board (ASB), responsible for developing, interpreting,
and updating USPAP, and the Appraiser Qualifications
Board (AQB), responsible for establishing the minimum
education, experience, and examination requirements for
real property appraisers.
© 2024 Saddleback College
Types of Appraiser Licenses
1. Appraiser Trainee – Apprentice
2. Licensed Appraiser – Residential Mostly
3. Certified Residential – Residential Mostly
4. Certified General – Commercial Mostly
Earning an appraiser's license requires both
Education and Experience.
***Always check the BREA website for the most
up-to-date licensing information.
[Link]
© 2024 Saddleback College
Types of Value
• Market value or value in exchange
• Value in use
• Liquidation value
• Investment value
• Assessment value
• Prospective value
• Retrospective value
• Value of a partial interest
• Going-concern value
© 2024 Saddleback College
Market value
Market value is the most probable price that
a property should bring in a competitive and
open market under all conditions requisite to
a fair sale, the buyer and seller, each acting
prudently, knowledgeably and assuming the
price is not affected by undue stimulus.
© 2024 Saddleback College
Market value (cont’d)
The three main parts of an offer are:
• Price
• Terms
• Conditions
An arm's length transaction is a transaction in
which buyers and sellers act independently
without one party influencing the other.
Sales that are not considered arms’ length
include: Father selling house to son (at 50%
discount).
© 2024 Saddleback College
Market Price
The market price is not a value, but it is often
confused by consumers with market value.
Market price is what was actually paid for the
property. It could be market value, but it could
also be higher, or lower than market value.
© 2024 Saddleback College
Value in Use
Value in use is not the same as market value,
which is also defined as the value in
exchange. Think about value in exchange for
a moment: the buyer is willing to exchange
$XXX,XXX for the property, and the seller is
willing to exchange that property for $XXX,
XXX.
© 2024 Saddleback College
Investment Value
Investment value is the value of a property to
a particular investor.
© 2024 Saddleback College
Assessment Value
This is the value of the property for Ad
Valorem tax purposes.
© 2024 Saddleback College
Retrospective Value
Retrospective value is an estimate of value at
a specific time in the past.
© 2024 Saddleback College
Value of a Partial Interest
We learned already that a grantee can own
all of the property or some of the property. We
learned that a person can possess a life
estate in the property.
© 2024 Saddleback College
Going Concern Value
This is the valuation of a property as it is
being used and takes into account both
tangible and intangible items.
© 2024 Saddleback College
Feasibility study
A feasibility study is almost always very client
specific. In the simplest terms, it is a study of
the cost-benefit relationship of an economic
endeavor.
A feasibility study is often combined with a
highest and best use analysis (HBU)
© 2024 Saddleback College
Appraisals and valuation
products
BPO – Broker Price Opinions (Real Estate
Agents, Foreclosures)
CMA – Comparative or Competitive Market
Analysis (Real Estate Agents)
AVM – Automation Valuation Model (Zillow)
Hybrid Appraisals have third party inspectors
and appraiser stays in office.
Property data collector (PDC) is the inspector.
© 2024 Saddleback College
Hypothetical condition
A condition, directly related to a specific
assignment, which is contrary to what is
known by the appraiser to exist on the
effective date of the assignment results but is
used for the purpose of analysis.
© 2024 Saddleback College
Extraordinary Assumption
Extraordinary Assumption as “an
assignment-specific assumption as of the
effective date regarding uncertain information
used in analysis which, if found to be false,
could alter the appraiser's opinion or
conclusions.”
© 2024 Saddleback College
Narrative Appraisal Reports
These are usually done for complex
appraisals, and the appraiser gives a very
detailed, thorough analysis of the process of
the appraisal. A narrative report can include
extensive reporting about the highest and
best use, and how the appraiser arrived at
their conclusion, as well as narrative data
explaining what the appraiser did to develop
the appraisal.
© 2024 Saddleback College
Basic Value Principles
© 2024 Saddleback College
Anticipation
The principle of anticipation states that
property value may be affected by a possible
future event.
© 2024 Saddleback College
Balance
It is used to describe a mix of land uses that
maximizes land values.
© 2024 Saddleback College
Change
The one thing everyone in real estate can rely
on absolutely is change.
© 2024 Saddleback College
Competition
The phrase “excess profits attract excess
competition” also applies to housing. Low
supply coupled with high demand will cause
builders to build more properties.
© 2024 Saddleback College
Conformity
For single-family residential properties, the
principle of conformity means that the houses
should be similar in design, construction, age
and condition.
© 2024 Saddleback College
Consistent use
The principle of consistent use says that the
value of the land and the value of the
improvements must be on the same basis.
© 2024 Saddleback College
Contribution
The principle of contribution is that any
improvement to a property, whether it is a
building put on a vacant site, or an addition or
improvement to an existing building, is worth
only what it will add to the property’s market
value, regardless of the cost of the item.
© 2024 Saddleback College
Cycles of a neighborhood
The four cycles of a neighborhood are:
• growth
• equilibrium
• decline
• revitalization
© 2024 Saddleback College
Externalities
This is the principle that states influences
outside a property may have a positive or
negative effect on value.
© 2024 Saddleback College
Four Factors of Production
Four Factors of Production: capital, labor,
land and management
© 2024 Saddleback College
Highest and Best Use (HBU)
Highest and best use is a primary appraisal
principle. If an appraiser does not correctly
identify the property’s highest and best use,
the appraisal will be seriously flawed.
Physically Possible
Legally Permissible
Economically Feasible
Maximally Productive
© 2024 Saddleback College
Highest and Best Use (HBU)
(cont’d)
An interim use is the
best use to put the
property to while
waiting for conditions
to be right to put the
property to its ultimate
highest and best use.
© 2024 Saddleback College
Law of Increasing Returns and
Law of Decreasing Returns
Simply put, too much of something will not
have a positive effect on property values. For
example, one fireplace might add value; six
fireplaces usually are decreasing returns, or
when additional improvements bring no
corresponding increase in income or value.
© 2024 Saddleback College
Opportunity Cost
Opportunity cost is defined as the value
differential between two alternative
investments, each of which has a different
rate of return.
© 2024 Saddleback College
Progression
This principle states that the value of less
expensive properties will benefit if surrounded
by more expensive properties.
© 2024 Saddleback College
Regression
This is the opposite of progression.
© 2024 Saddleback College
Substitution
This is the principle that most consumer
instinctively understand, and it permeates the
real estate market.
© 2024 Saddleback College
Supply and demand
This basic economic law is always evident in
real estate markets. If supply is limited, and
demand holds steady or increases, prices
will rise.
© 2024 Saddleback College
Surplus productivity
In appraisal terminology, this refers to the
money left over on an income-producing
property after all costs are covered.
© 2024 Saddleback College
Residential Appraisal Reports
(forms)
• 1004 – Single
Family Home
• 1073 – Condo
• 2055 – Exterior
• 1025 – Income
2-4 Unit property
• GPAR – Non-lending
General Purpose
Appraisal Report.
© 2024 Saddleback College