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Exam 2

20 Pages

Course Code
FIN 3351

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Chapter 8 Valuation Using the Sales Comparison and Cost ApproachesAn appraisal is the process of estimating the market value of real estateWho uses market value appraisalsBuyersSellersCorporate acquisitions mergers or dissolutionsCourtsoDivorcesoEminent domain casesoSettlement of estatesoBankruptcyMortgage LendersWhy are appraisals necessaryFew transactions available to indicate valueEvery property is uniqueoUnique locationoMany and varied attributesLarge value of the asset makes errors costlyValue ConceptsMarket value most probable selling price assuming normal sale conditions value for the typical market participantInvestment value value to a particular individual investor a buyers investment value is the maximum that they would pay whereas a sellers investment value is the minimum they would sellTransaction price price actually paid for a specific property only observed when the investment value of the buyer exceeds the investment value of the sellerAppraisal unbiased written estimate of the fair market value of a property usually referred to as a subject property at a particular timeAppraisal Report document the appraiser submits to the client and contains the appraisers final estimate of value the data upon which the estimate is based and the calculations used to arrive at the estimateUniform Standards of Appraisal Practice USPAPrequired and followed by all states and federal regulatory agencies1Define the ProblemSpecific propertyRights to be valuedType of market market insurance taxableDate of valuation2Selection and collection of dataProperty market dataoVacancy ratesoRental ratesoPrices per square footProperty specific dataoSubject propertyoComparable propertiesRequired yields or rates of capitalization3Highest and best usewhat property is valued atLegally permissiblePhysically possibleFinancially feasibleMost profitable yields highest residual value to land
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