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PART ONE – THE APPRAISAL PROFESSION

I. The Appraiser’s Work

A. The professional appraiser estimates the value of real property (land and/or buildings).

B. An appraiser’s estimate of a property’s value usually is in writing, and may be a letter simply stating the appraiser’s value estimate.

C. The longer, more extensive document is called an appraisal report.

D. The appraiser needs some of the expertise of the following professionals in order to formulate an accurate evaluation of a property:

• Surveyor

• Builder

• Real estate broker

• Accountant

• Economist

• Mortgage lender

E. An appraisal takes into account the many factors that influence a property’s value.

II. Qualifications of an Appraiser

A. The real estate appraiser’s primary qualifications are education and experience.

B. Education – a broad array of educational opportunities are available to the appraiser including colleges, private schools, professional organizations and real estate schools.

C. An appraiser needs to have knowledge of many fields in order to effectively apply appraisal techniques. Appraisal involves a great deal of judgment, and the more an appraiser knows about various aspects of a property, such as the economic attributes as it relates to accounting, the significance of city planning, its construction, etc.

D. Experience – In most states, the novice appraiser will begin as a trainee under the direct supervision of a certified appraiser.

E. Objectivity – Even though many calls in appraising involve subjective opinions of the appraiser, the appraiser must remain objective in considering all factors relevant to the appraisal assignment. Any personal interest in the outcome of the appraisal must be revealed to the client, as indicated by USPAP standards. It is best if the appraiser avoids any assignment that could create the appearance of impropriety.

F. An appraiser’s main credential will ultimately be the expertise that comes with performing numerous appraisals. It is also important to keep up with the latest developments in the field and to read appraisal and related publications, as well as attend various seminars and courses.

III. Assignments Available

A. In a real estate transaction involving either the sale or lease of real property, an appraisal may be desired to:

• help set the seller’s asking price

• help a buyer determine the fairness of an asking price

• set a value for real property when it is part of an estate

• estimate the relative values of properties being traded

• set value on property involved in corporate mergers, acquisitions, liquidations, or bankruptcies

• determine the amount of a mortgage loan

• set rental rates

In addition, other uses of real estate requiring appraisals include:

• determining building insurance value

• determining the effect on value of construction defects as part of a legal proceeding

• determining property losses due to fire, storm damage, earthquake, or other disaster

• assessing property for taxes

• setting gift or inheritance taxes

• estimating remodeling costs

• valuing property as part of a marital dissolution

• valuing property in an arbitration of a dispute

• determining development costs

• discovering a vacant property’s most profitable use

• ascertaining whether the present use of a property is its most profitable use

• establishing a value for property in a condemnation proceeding

IV. Employment Opportunities

A. The appraiser may be self-employed, working as a sole practitioner, or perhaps using the services of a staff of other appraisers.

B. A few appraisal companies have offices in major cities coast to coast, employing the services of hundreds of appraisers.

C. Large industrial organizations and chain stores hire appraisers to serve their real estate departments by inspecting and judging the condition of land and buildings before entering into a purchase or lease agreement.

D. If the appraisal will be used as part of a federally related transaction, the services of a licensed or certified appraiser will probably be required.

E. Some states require that all appraisers be licensed or certified – even for transactions that are not federally related.

V. Appraiser Compensation

A. The majority of real estate appraisals are market valuations of single-family homes, and are performed by self-employed appraisers.

B. A self-employed appraiser works a specified fee and is usually hired by a lender.

C. Becoming more common, the appraiser may be hired by an appraisal company that contracts with the lender or other client to provide appraisal services as needed.

D. Fees are based on the time required to complete the appraisal process and report, but are always negotiable.

E. Fees are subject to a balance between the appraiser’s overhead and expenses on one hand, and market competition on the other hand.

F. Under no circumstances should the appraiser’s fee be dependent on the final opinion of value, to avoid even the appearance of a conflict of interest.

VI. Licensing and Certification

A. The Great Depression of the 1930s gave birth to both the Society of Residential Appraisers as part of the United States Savings and Loan League, and the American Institute of Real Estate Appraisers under the auspices of the National Association of Real Estate Boards (now the National Association of Realtors).

B. The 1980s brought much economic upheaval that contributed to the collapse of many savings and loan institutions, which led to the licensing of real estate appraisers.

C. Besides economic troubles, sometimes outright fraud in the preparation of real estate appraisals contributed to the savings and loan crisis.

D. Before the savings and loan crisis, very few states required licensing or certification of real estate appraisers. The federal government was about to change that.

VII. FIRREA

A. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) established the RTC (Resolution Trust Corporation) to take over, for sale or liquidation, savings and loan institutions that failed.

B. RTC operated until 1996.

C. RTC was charged with acting as conservator and receiver during the resolution of the insolvent institutions.

D. RTC took over the functions of the Federal Disposition Association (FADA), making it the largest single seller of real estate.

E. On its dissolution, RTC’s duties were taken over by FDIC.

VIII. Appraiser Licensing

A. FIRREA created the requirement that as of July 1, 1991 (later extended to January 1, 1993), all “federally related real estate appraisals” be performed only by appraisers licensed or certified (as required) by the state in which the real estate is located.

B. A certified appraiser is required for transactions involving property valued at more than $1 million, or complex one-unit to four-unit residential property with a transaction value greater than $250,000.

C. Licensed status generally is required for appraisals of one-unit to four-unit residential property, unless the size and complexity of the property indicate that a certified appraiser is necessary.

D. Appraisals on nonresidential property and complex residential property valued at less than $250,000 also may be handled by licensed rather than certified appraisers.

E. The current minimum valuation threshold below which an appraiser licensing or certification is not required is $250,000.

F. However, Fannie Mae, Freddie Mac, HUD, and the VA still require the use of state-licensed or certified appraisers.

IX. The Appraisal Foundation

A. FIRREA requires that state appraiser licensing and certification qualifications and appraisal standards meet or exceed those of the Appraisal Standards Board (ASB) and the Appraiser Qualifications Board (AQB) of The Appraisal Foundation.

B. The ASB establishes the rules for developing an appraisal and reporting its results. Also is responsible for the enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP), which have been adopted by all major appraisal groups.

C. The AQB establishes the qualifications for states to follow in the licensing, certification, and recertification of appraisers.

X. Other Federal Legislation

A. Fair Housing – the federal fair housing laws cover real estate appraisals, as well as brokering and selling real estate

B. Appraisers also need to be familiar with environmental law, and how certain contaminations can affect the value of real property

C. Professional Standards of Practice – In 1985, nine appraisal groups formed an Ad Hoc Committee on USPAP

D. The original USPAP standards were published in 1987, and have been amended several times since.

E. USPAP Standards 1, 2, and 3 cover real property appraisal, real property appraisal reporting, and review appraisal.

XI. The Modern Appraisal Office

A. With the increasing availability and range of use of small, easily programmed office computers, the appraiser must be acquainted with a variety of appraisal-based computer applications.

B. The major appraisal software packages cover everything from case tracking, including data collection and report preparation, to management of the appraisal office, including billing and staffing.

C. High-speed Internet capability is almost a requirement in today’s business environment.

D. Computer-maintenance and off-site storage of files is also extremely vital.

E. A good laser printer capable of producing at least six black and white pages per minute at a resolution of at least 600 by 600 dpi. A color printer for the photograph pages is also a nice to have second printer.

F. Back-up power supply and a back-up storage system for the computer memory is essential.

G. Geographic Information Systems (GIS) – satellite-based mapping systems based on latitude and longitude are entering the commercial marketplace.

H. Electronic Data Exchange (EDI) – an electronic link between the lender and the appraiser via modem allows a computer in the appraiser’s office to transmit the required information almost instantaneously, and a hard copy of the report is no longer needed in some cases.

I. Camera – The digital camera is a must for the modern appraisal office. An appraiser can download photos of subject properties and comparables directly into the appraisal software program for storage and later retrieval.

J. Although the use of technology has greatly aided the appraiser, there will never be a substitute for the skilled and informed judgment of a professional appraiser.

PART TWO – THE APPRAISAL PROCESS

I. Steps in the Appraisal Process

A. An appraisal begins with a specific assignment. Every appraisal requires the organized collection and analysis of data. Specific data about the property, general date about the surrounding area, and data applicable to the appraisal approach being used.

B. The eight steps to the appraisal process are as follows:

1. State the problem. Defining the appraisal problem includes the following:

a.) Identification and location of the real estate

b.) Identification of the property rights to be appraised

c.) Definition of value to be estimated

d.) Purpose and intended use of the appraisal

e.) Effective date of the value estimate

f.) Any special limiting conditions

2. List the data needed and the sources.

3. Gather, record, and verify the necessary data.

4. Determine the highest and best use.

5. Estimate the land value

6. Estimate value by each of the three approaches.

7. Reconcile the estimated values for the final value estimate.

8. Report the final value estimate.

II. Beginning the Appraisal Process

A. Purpose and Use of the Appraisal – market value is the most frequently sought appraised value.

B. Interests to be Appraised – the form of legal interest being appraised must always be specified.

C. The estimated value of an interest depends on the term of the interest, any limitations on property use during that term, whether the term is transferable, and other factors.

D. Date of the Value Estimate – an appraisal may be made as of any date – past, present, or future. Most often, the current value is sought.

E. USPAP requires the effective date of the appraisal and the date of the report both be included

F. An appraiser can estimate value as of a past date or a future date. In order to avoid misleading a client, the appraiser should always state the assumptions under which the appraisal is made, and any limitations on the use of the appraisal.

III. Limiting Conditions

A. Fannie Mae and other agencies do not expect an appraisal to be all-encompassing.

B. A Statement of Limiting Conditions and Appraiser’s Certification help define the appraiser’s role and specify conditions under which the appraisal is made.

C. Fannie Mae does not allow additions or deletions to their appraisal form

D. For other transactions, the appraiser may draft a customized set of limiting conditions.

E. Under USPAP, the appraiser must ensure that each written or oral real property appraisal report must “clearly and accurately disclose any extraordinary assumption, hypothetical condition, or limiting condition that directly affects the appraisal and indicate its impact on value.”

IV. FHA Appraisals

A. Appraisers who do FHA work must now complete a three-page form describing, in detail, the physical condition of a home.

B. The new standards require that appraisers pinpoint “problems with plumbing, walls, ceilings, roofs, foundations, basements, electrical systems, and heating and air conditioning systems; soil contamination; the presence of wood destroying insects; hazards and nuisances near homes; lead-based paint hazards; and other health and safety problems.”

C. Appraisers will not be certified to do FHA appraisals until they pass the HUD-mandated exam.

V. Valuation Approaches

A. Sales Comparison Approach – the sales comparison or market data approach to appraising makes the most direct use of the principle of substitution. The appraiser finds three to five properties that have sold recently and are similar to the subject property. The appraiser notes any dissimilar features and makes an adjustment for each by using the following formula:

Sales Price of Comparable Property ± Adjustments = Indicated Value of Subject Property

All adjustments are made to the comparable properties. If the comparable is superior in a particular feature to the subject, the appraiser subtracts the value of the feature from the comparable. However, if the comparable is inferior in a particular feature to the subject, the appraiser adds the value of the feature to the comparable.

Example: House A, which sold for $55,000, is comparable to house B, the subject property, but has a garage valued at $5,000. House B has no garage. On this case, using the formula for the sales comparison approach, the market value of the subject property would be reached as shown below.

$55,000 - $5,000 = $50,000

House B is valued at $50,000.

Vacant land is valued in the same way, by finding other comparable properties and adding or subtracting, as necessary, the worth of amenities present in either the subject or the comparable property and not in the other. These features could include the installation of utilities, composition of soil, terrain, shape, zoning, and favorable location.

B. Cost Approach – in the cost approach, the appraiser estimates the value of any improvements to the land (such as structures) in terms of their reproduction or replacement cost as though new. The appraiser then subtracts any loss in value owing to the depreciation of the improvements. Finally, the appraiser adds an estimate of the site (land), usually found by the sales comparison approach. The formula for the cost approach is:

Reproduction or Depreciation on

Replacement Cost - Improvements + Site Value = Property Value

of Improvements

Depreciation may occur through either deterioration (effects of wear and tear or the elements) or obsolescence. Obsolescence can be functional, such as outmoded room layout or design, or external, caused by changes in factors outside the property such as zoning, the property’s highest and best use, or supply and demand.

Example: A house being appraised is similar in size, design, and quality of construction to a new house that has a construction cost of $125,000. The house being appraised has depreciated by 20 percent due to lack of maintenance and is on a lot valued separately at $35,000. Using the cost approach formula:

$125,000 – (20% x $125,000) + $35,000 = Property Value

$125,000 - $25,000 + $35,000 = $135,000

The estimated value of the property based on the cost approach is $135,000.

C. Income Capitalization Approach – this approach is based on the net income, or investment return, that a buyer expects from the property. The price the buyer will pay will be determined by the probable return the property will yield from the investment.

The income capitalization approach is based on net operating income (NOI) – which is usually expressed as an annual amount. Rents are not net operating income. To get to net operating income the following formula must apply:

Gross Potential Income – Losses to vacancies and collections = Effective Gross Income

Effective Gross Income – Operating Expenses and Reserves for Replacement = NOI

If a property’s net operating income for the year is known, as well as the buyer’s required capitalization rate, value can be computed using the following formula:

Net Operating Income = Property Value

Return (Capitalization Rate)

or:

I = V

R

Example: A buyer wants a 9 percent investment return. He is interested in a medical office building that produces a net operating income of $22,500 per year. What would the buyer be willing to pay for the building?

$22,500 = $250,000

9%

The property value necessary to produce the expected net operating income is $250,000.

D. Relationship of Approaches – The three approaches to real estate appraisal require different kinds of information. The information available will help determine which of the appraisal methods will be given the most weight in the appraiser’s final estimate of the market value of the subject property.

The sales comparison approach is the most reliable approach with single-family residences; the cost approach is most reliable with non-income-producing property having a limited market or with special purpose properties; and the income capitalization approach is most reliable with income-producing properties.

Most appraisals will require the use of more than one approach, especially when the land value must be distinguished from building value, as in the cost approach. Also, land value must be separated from building value for tax valuation purposes.

Reconciliation is the step in the appraisal process when the appraiser analyzes the value indications from the three approaches to arrive at the best and most supportable opinion of value. This can be either a single dollar figure or a range into which the value will most likely fall.

Proper analysis and reconciliation are essential to a good appraisal report. The use of accepted appraisal methods does not in itself produce a sound value estimate. It must be combined with good judgment on the part of the appraiser, as well as experience in gathering needed information and making thorough analyses and valid interpretations of relevant data.

PART ONE – PLANNING AND DESIGN

I. Regulation of Residential Construction

A. Building codes for the industry were established when the Building Officials Conference of America (BOCA) combined with the National Board of Fire Insurance Underwriters to set forth rules to ensure both comfort and safety for homeowners.

B. BOCA is now the Building Officials and Code Administrators International, Inc.

C. The FHA and VA standards also have served as models for municipal building codes, which place primary emphasis on materials, structural strength, and safe, sanitary conditions. These building codes set the minimum construction standards that must be met by builders.

II. Plans and Specifications

A. Careful plans and specs are required to comply with building codes.

B. Plans or blueprints are working drawings that show the construction details of the building.

C. Specifications are written statements that establish the quality of materials workmanship required.

D. Architect – prepares plans and specifications, and also may negotiate with the builder and inspect the progress of the construction

E. General Contractor – the builder acting as day-to-day supervisor of the job site in addition to procuring building materials and hiring carpenters, plumbers, electricians, and other subcontractors.

F. Others involved in residential construction can include the following:

1. Mechanical engineer – provides the heating, a/c, and plumbing plans and specs

2. Structural engineer – ensures the foundation will support the structure and specifies the amount of steel required for reinforcing the foundation, and the type and mix of concrete to be used

3. Soil engineer – assists in determining the stability of the land on which the foundation is to be built

III. Building Measurement

A. Size of the structure is important for an appraiser when determining value.

B. The appraiser should always:

1. state the basis for the measurement provided in the appraisal report

2. verify all measurements personally

3. if a multi-unit building is involved, base all measurements on the same standard for consistency

C. Gross Living Area – for a single-family detached residence, size is described in terms of gross living area (GLA). GLA is the total amount of finished habitable above-grade space, measured along the building’s outside perimeter.

1. Attics, basements, and crawl spaces are not included in this measurement. However, if a home is built on a slope, the lower levels may count even if they are not completely above grade on all sides.

2. For condos, size is measured by the inside or interior floor space rather than by outside wall measurement.

D. Gross Building Area – for multi-family residences and industrial buildings, size is described in terms of gross building area (GBA). GBA is defined as all enclosed floor areas (including both attics and basements), measured along the building’s outside perimeter.

E. Gross Leasable Area – for shopping centers, size generally is described in terms of square feet of gross leasable area (GLA). GLA is defined as total space designed for occupancy and exclusive use of tenants (including basements), measured from outside wall surfaces to the center of shared interior walls.

The size of other multi-tenant commercial properties, such as office buildings, will be described as local custom dictates or, perhaps, according to the negotiating strengths of the tenant and the landlord.

IV. House Styles

A. House styles can be grouped under two broad categories: traditional and contemporary.

B. Traditional Styles – examples would be Cape Cod, Victorian, and Georgian – just to name a few

C. Contemporary Styles – a contemporary house may appear uncomplicated, but actually be a clever example as to how to make the best use of materials and space. The expression of the structural system itself has a major design impact. Contemporary styling lends itself better to inside-outside living with its use of sliding doors made of glass, large windows, skylights, decks, terraces, and atriums.

V. House Types

A. The one-story house – often referred to as a ranch, has all habitable rooms on one level. It has no stairs to climb, especially if built on a slab and not a basement. The roof of a one-story house is usually pitched low which simplifies construction. The ranch is one the easiest houses to maintain.

B. The one-and-a-half-story house – known as a Cape Cod, it is actually a two-story house in which the second-floor attic space has sufficient headroom to permit up to half the area being used as livable floor area. Two main advantages are that it is economic in cost per square foot and it has built-in expandability.

C. The two-story house – this house offers the most living space within an established perimeter. The living area is doubled on the same foundation and under the same roof. Plumbing can be aligned from floor to floor, winter heating is easy as the lower floor has heat that rises to the second floor, and more house can be built on a smaller lot.

D. The split-level house – it has three different levels of space. The lowest level is entirely or partially below the outside finished grade. The second level, raised one half-flight of stairs from the lowest level has the kitchen and main living areas. The third level, another half-flight up, is the highest level which contains the sleeping areas.

E. The split-entry house – sometimes called a raised ranch, is basically a one-story house on an elevated foundation. The lower level is a more usable space for recreation rooms, baths, bedrooms or other uses. The square footage of the house id doubled at a modest cost increase.

F. Factory-built houses – there are four basic types of manufactured or factory-built houses and they are:

1. Manufactured house – the most complete of the factory-built houses, available in one or two pieces needing only to be anchored to a foundation and connected to utilities. Manufactured homes often are referred to as mobile homes or trailers, even though their mobility may be limited to the journey from factory to construction site.

2. Modular house – must meet state and local building code requirements, and it comes from the factory in single or multiple room sections, which are then fitted together at the construction site.

3. Panelized house – entire wall units, complete with electrical and plumbing installations, are constructed at the factory and transported to the site where final assembly begins. Must meet state and local building codes.

4. Precut house – materials are delivered to the construction site already cut and ready to assemble. Each piece should fit exactly and time is saved measuring and cutting. Also must meet state and local building codes.

VI. Orientation: Locating the House on the Site

A. A house correctly oriented and intelligently landscaped, with windows and glass doors in the right places and adequate roof overhang, can save thousands of dollars in heating and air-conditioning bills over the years.

B. Topography – the “lay of the land”, often dictates what style of building may be placed on the site and how the foundation of the building must be designed.

C. Facing the South – ideally, a house should be positioned on the lot so that the main living areas have the best view and also face south. The south side of the house receives five times as much solar heat in the winter as in summer, and the north side receives no solar heat at all during the winter months.

The same sunshine that helps to heat in the winter will make it uncomfortable in the summer unless certain measures are not taken. A wide roof overhang can block the summer sun because it rides higher in the sky in summer but will not block it during the winter because the sun rides so much lower.

D. View – If a site has an interesting view east or west, it would be smart to take advantage of it, in spite of the sun factor.

PART TWO – CONSTRUCTION DETAILS

I. Foundations

A. The foundation of a house is the substructure on which the superstructure rests. The term foundation includes footings, foundation walls, columns, pilasters, slab, and all other parts that provide support for the house and transmit the load of the superstructure to the underlying earth.

B. Can be constructed of cut stone, stone and brick, concrete block, or poured concrete.

C. Poured concrete is most common because of its strength and resistance to moisture.

D. Concrete Slab – composed of a concrete slab supported around the perimeter and in the center by concrete beams sunk into the earth. Made of poured concrete reinforced with steel rods. Waterproofing membrane between the concrete and the ground. Foundations formed by a single pouring of concrete are called monolithic, while those in which the footings and the slab are poured separately are referred to as floating.

E. Pier and Beam – the foundation slab rests on a series of isolated columns, called piers, that extend above the ground level. The space between the ground and the foundation is called the crawlspace. The pier rests on a footing or base. The pier supports the sill, which is attached to the pier by an anchor bolt. The floor joists that provide major support for the flooring are placed perpendicular to and on top of the sills.

F. Termite protection – before the slab for the foundation is poured, the ground should be chemically treated to poison termites, and thus prevent them from coming up through or around the foundation and into the wooden structure. The chemical treatment of wooden sills and beams, and the installation of metal termite shields also provide protection.

G. Radon gas – a colorless, odorless, tasteless radioactive gas that comes from the natural breakdown of uranium. It is found in most rocks and soils. High radon levels in homes can increase risk of lung cancer. Radon can enter a home through dirt floors, cracks in the foundations, floors and walls, floor drains, tiny cracks or pores in hollow block walls, loose-fitting pipes, exhaust fans, sump pumps, and many other ways, including the water supply. The more airtight the home, the higher the radon levels.

II. Exterior Structural Walls and Framing

A. The first step in erecting exterior walls is the framing. The frame is the skeleton members of a building to which the interior and exterior walls are attached.

B. The walls of the frame are formed by vertical members called studs. Studs are spaced at even intervals and are attached to the sill. Stud spacing for a one-story house can have stud spacing of 24 inches on center and for a two-story house, 16 inches on center.

C. Studs rest on plates that are secured to and rest on the foundation wall.

D. In constructing walls and floors the builder will install firestops, boards or blocks nailed horizontally between studs or joists to stop drafts and retard the spread of fire.

E. The horizontal board across the top of a window or door opening is called a header.

F. The horizontal board across the bottom of the door or window is called the sill.

G. The three basic types of wood frame construction are as follows:

1. Platform Frame Construction - most common type. In platform construction only one floor is built at a time, and each floor serves as a platform for the next story. The wall studs are first attached to the upper and lower plates, and the entire assemblage is then raised into place and anchored to the sill.

2. Balloon Frame Construction – in this construction, the studs extend continuously to the ceiling of the second floor. The second floor joists rest on ledger boards or ribbon boards set into the interior edge of the studs. This method gives a smooth, unbroken wall surface on each floor level, thus alleviating the unevenness that sometimes results from settling when the platform method is used. This method is used when the exterior finish will be brick, stone veneer, or stucco.

3. Post and Beam Frame Construction – many contemporary-style buildings use this construction method. With this method the ceiling planks are supported on beams that rest on posts placed at intervals inside the house. Because the posts provide some of the ceiling support, rooms can be built with larger spans of space between the supporting sidewalls. Sometimes the posts and beams are left exposed as part of the décor.

H. Exterior walls – after the skeleton is constructed, the exterior wall surface must be built and the sheathing and siding applied. The sheathing is nailed directly to the wall studs to form the base of the siding. Sheathing can be plywood, insulated drywall, or gypsum board depending on the final siding application.

Masonry veneer versus solid brick – brick veneer is a thin layer of brick often used as a covering on a frame house to give the appearance of a solid brick house. If the brick walls provide the support for the roof structure, then the house has all masonry, or solid brick, walls. The walls of a veneered house are seldom more than 8 inches thick. Weep holes are small outlets evenly spaced around the base of the masonry perimeter that provide an outlet for moisture or condensation trapped between the brick and the sheathing, and are essential for proper ventilation.

I. Insulation – should be placed in exterior walls and upper floor ceilings. Rock wool or fiberglass are commonly used insulation materials. The effectiveness of insulation depends on its resistance to heat flow – its R-value – rather than just on its thickness. The larger the R-value, the more resistance to heat flow and the better the insulation. The minimum property standards for federally financed construction call for R-11 or R-13 insulation within the walls and R-19 or R-22 in the attic. R-values are additive, meaning if you already have an R-13 value of insulation and you want R-35, you can use a layer of R-22 to achieve it.

J. Upgraded insulation guidelines – The U.S. Department of Energy (DOE) recommends

R-values to various climates throughout the country. They recommend that the average insulation level in attics should be R-40.

K. Asbestos and urea formaldehyde – these insulations have been banned because of the health hazards caused by each of them.

III. Roof Framing

A. Roof construction includes the rafters, sheathing, and exterior trim or frieze board.

B. Eave or Cornice – the overhang of a pitched roof that extends beyond the exterior walls of the house.

C. The cornice is composed of the soffit, the frieze board, the fascia board, and the extended rafters.

D. Frieze Board – the exterior wood-trim board used to finish the exterior wall between the top of the siding or masonry and eave, or overhang, of the roof framing.

E. Fascia Board – an exterior wood trim used along the line of the butt end of the rafters where the roof overhangs the structural walls.

F. The overhang of the cornice provides a decorative touch to the exterior of a house, as well as some protection from sun and rain.

IV. Exterior Windows and Doors

A. Types of windows – Wood is preferred where temperatures fall below freezing. Although metal windows require less maintenance than wood, the frames get colder in the winter and panes frost and drip from moisture condensation.

B. Windows may be sliding, swinging, or fixed.

C. Sliding Window – most common window used. Usually two types – double-hung, which has an upper and lower sash, both of which slide vertically along separate tracks. The horizontal sliding window moves along a track that slides horizontally and like the double-hung window, only half of this window can be opened for ventilation.

D. Swinging Windows – casement windows are hinged at the side and open outward. One advantage of the casement window is that the entire window can be opened for ventilation. Jalousie or louver windows consist of a series of overlapping horizontal glass louvers that pivot together in a common frame and are opened and closed with a lever or a crank. Usually used in a sunroom or sunporch.

E. Fixed Windows – usually consists of a wood sash with a single large pane of insulated glass that cannot be opened for ventilation.

F. Storm Windows – fit either on the inside or on the outside of the prime windows, storm windows are usually made of aluminum, although older houses sometimes have wooden ones and newer houses may have the plastic type. Used for both winter and summer where a/c is on constantly.

G. Skylights – bring both natural illumination and the heat of the sun into rooms. A skylight lets about five times as much daylight into an area as a window of the same size.

V. Types of Doors

A. Doors are most often classified by construction and appearance – the four most common types are flush, panel, sliding glass, and storm and screen.

B. Flush Doors – most often constructed of hardwood-face panels bonded to solid cores or hollow cores of light framework. Solid cores are preferred for exterior doors for better sound and heat insulation. Hollow core doors are about one third the weight of solid doors and are used for interior locations.

C. Panel Doors – panel doors may be used for either interior or exterior application. They consist of stiles (solid vertical members of wood or metal) and rails (solid horizontal members of wood or metal) enclosing flat plywood or raised wood panel fillers or, in some types, a combination of wood and glass panels.

D. Sliding Glass Doors – have at least one fixed panel and one or more panels that slide in a frame of wood or metal.

E. Storm and Screen Doors – made either with fixed glass panels, to improve weather resistance, with both screen and glass inserts, to permit ventilation and insect control.

VI. Interior Walls and Finishing

A. Interior walls are the partitioning dividers for individual room and are usually covered with plasterboard, although the older, more expensive process of covering strips of wood lath with plaster also may be used.

B. The terms drywall and wallboard are synonymous with plasterboard. Plasterboard is finished by a process known as floating and taping.

C. The final features added to a home include floor coverings, trim, cabinet work, and wall finishings.

VII. Plumbing

A. The plumbing system in the house is actually a number of separate systems, each designed to serve a special function.

B. Water Supply System – brings water to the house from the city main or from a well and distributes hot and cold water through two sets of pipes.

C. Drainage System – collects waste and used water from fixtures and carries it away to a central point for disposal outside the house.

D. Vent Piping System – carries out of the house all sewer gases that develop in drainage lines. It also equalizes air pressure within the waste system so that waste will flow away and not back up into fixtures.

E. Waste Collecting System – needed only when the main waste drain in the house is lower than the sewer level under the street or when the house has more than one drainage system.

F. House Connection Pipe System – a single pipe that is the waste connection from the house to the city sewer line, to a septic tank, or to some other waste disposal facility.

G. Plumbing must be installed subject to strict inspections and in accordance with local building codes.

H. Plumbing Fixtures – bathtubs, toilets, and sinks are made of cast iron or pressed steel coated with enamel. Fiberglass is a new material for these fixtures and is gaining in popularity. These fixtures are usually very durable and are replaced mostly for an obsolete style.

I. Water Heater – almost always heated by gas or electricity. They range from 17 gallons up to 80 gallons for residential use. A 30-gallon water heater is usually the minimum size installed.

VIII. Heating and Air-Conditioning

A. Warm-air heating systems are most prevalent in today’s houses. A forced warm-air system consists of a furnace, warm-air distributing ducts, and ducts for the return of cool air.

B. Each furnace has a capacity rated in British Thermal Units (BTUs). The number of BTUs represents the furnace’s heat output from gas, oil, or electric firing.

C. All gas pipes for heating and cooking are made of black iron. Gas pipes are installed in the walls or overhead in the attic, where adequate ventilation is possible. They are never placed in the slab.

D. Air-conditioning units are rated either in BTUs or in tons. Twelve thousand BTUs are the equivalent of a one-ton capacity.

E. Heat pumps will probably eventually replace today’s conventional combination heating and cooling systems.

F. Solar Heating – there are two methods for gathering solar energy: passive and active. A passive system is one in which the windows on the south side of a building take advantage of winter sunlight. A passive system can be improved inside the house by having water-filled containers, which are warmed by the sun during the day and radiate warmth into the room during the night. An active system gathers the heat from the sun’s rays with one or more solar collectors.

IX. Electrical System

A. A good residential electrical system has three important characteristics:

1. It must meet all National Electrical Code (NEC) safety requirements: each major appliance should have its own circuit, and lighting circuits should be isolated from electrical equipment that causes fluctuations in voltage.

2. The system must meet the home’s existing needs and have the capacity to accommodate room additions and new appliances.

3. It should be convenient; there should be enough switches, lights, and outlets.

B. Electrical service is brought to the house from the power company through a transformer and the meter into a circuit breaker box (or a fuse panel in older homes).

C. In case of power overload, the heat generated by the additional flow of electrical power will cause the circuit breaker to open at the breaker box, thus reducing the possibility of electrical fires.

D. Power Requirements – Residential wiring circuits are rated by the voltage they are designed to carry. In the past, most residences were wired for only 110-volt capacity. Today, because of the many built-in appliances in use, 220-volt to 240-volt service is generally necessary.

Amperage, the strength of a current expressed in amperes, is shown on the circuit breaker panel. A house should have at least 100 amps but larger homes may need 150 to 200 or more amp service.

E. Electric and Magnetic Fields – While there is no conclusive evidence of any harmful effects of electric and magnetic fields (EMFs), some studies have suggested a correlation between high levels of EMFs and certain types of cancers, such as leukemia.

DATA COLLECTION – Steps 1 through 3 in the Appraisal Process

I. Step 1: State the Problem

A. Prior to accepting an assignment, an appraiser must determine whether he or she has the skills necessary to perform the job competently.

B. If not competent enough, USPAP calls for appraiser to disclose this fact to client before assignment acceptance.

C. Assignment can still be accepted, as long as appraiser retains expertise to complete job.

D. If the appraiser did not realize that the assignment was above his/her skill level after the job was started, the appraiser must notify the client at that point of discovery.

E. After competency has been settled, we now get to finally state the problem with the following steps:

• describe the subject property

• identify the property rights to be appraised

• define the value sought

• specify the date of valuation

• determine any conditions limiting the scope of the appraisal

F. Property Rights Conveyed – most residential properties are held in fee simple ownership, meaning all the rights of ownership are held by owner. Rights of ownership, however, can be separated and held by more than one person.

1. mineral rights are a good example of when rights are separated; if all the properties in the area carry a similar reservation of mineral or other rights, there is likely to be little or no effect on market value

2. a common example of a transfer of only a partial interest in commercial property is the transfer of developmental air rights; these rights could be transferred separately and may allow a developer to accumulate the development rights of several different parcels to erect a single building that would otherwise violate zoning building height restrictions

3. an easement creates a benefit to the dominant tenement and a detriment to the servient tenement

4. if a property has been leased, the leased fee estate retained by the lessor (landlord) must be valued in light of the existing lease; if contract rent is higher than market rent, the leased fee estate will be more valuable

II. Step 2: List the Data Needed and the Sources

A. the appraiser must determine the types of data needed and where they can be located

B. certain data must always be obtained – info about the region, city, or neighborhood; other facts about the property being appraised

C. in sales comparison approach, sales data on comparable properties also must be obtained

III. Step 3: Gather, Record, and Verify the Necessary Data

A. knowledge of the sources of available data and their reliability is essential if an appraisal is to be performed properly

B. in Step 3 the appraiser needs the following information:

• general data on the nation, region, city, and neighborhood

• specific data on the subject site and improvements

• sales data for the sales comparison approach

• cost and accrued depreciation data for the cost approach

• income and expense data for the income capitalization approach

C. the type of property being appraised dictates the emphasis to be placed on the types of data collected

D. the appraiser makes an integrated analysis, moving from general data to specific data required for the specific appraisal approach being used with the subject property always in mind

IV. The Data Source List

A. forty-five sources to which an appraiser should have access make up the Data Source List (page 111 in textbook)

B. Kinds of Data Needed :

1. National and Regional Trends – an important area of national influence is real estate financing; short-term and long-term patterns in population movements across the country; retirees from Midwest and northeast continue to relocate to an affordable and warmer climate such as in Texas, Arizona, Nevada, and Florida; the national economy affects the real estate market most visibly during periods of inflation or deflation

2. Economic Base – defined as the level of business activity in a community –particularly activity that brings income into the community from surrounding areas; helps determine the tax base for the community; no substantial economic base means no attraction to new residents and businesses; the characteristics of a community’s economic base can tell an appraiser a great deal about the long-term economic viability of a community and ultimately its ability to sustain real estate values

3. Local Area and Neighborhood – most neighborhoods are generally referred to by their subdivision names; sometimes a business district defines a local area or neighborhood; access to shopping, schools, and places of employment are all factors that make one neighborhood more desirable than another; location is the most important factor in comparing other properties with the subject

4. Site and Improvements – individual building lots often are more valuable when combined with other lots into a single parcel; Assemblage is the process of combining adjacent lots; Plottage is the increase in value that may result from ownership of the combined lots; a highest and best use study should take into account the site’s present zoning, physical characteristics, and existing structures; agricultural land entails special considerations such as the suitability of the land for specific crops as well as the presence of any contaminants; does the land have adequate water sources for irrigation and is the drainage of the soil adequate; does the land consist of wetlands subject to federal supervision

C. Data Forms – the best way to make sure that no details of the property, its area, or the approaches to value are overlooked is to use a form for recording the necessary information. It is the appraiser’s job to keep up to date on economic indicators such as employment level, business starts (and failures), and political trends that could signal governmental policy changes affecting property values.

1. Neighborhood Data – the appraiser probably will not have to compile new neighborhood data for each appraisal, because many of the appraisals to be made will be within the same neighborhood; some neighborhood data will have to be updated at least annually; firsthand knowledge of the area is of tremendous value to an appraiser and essential for an accurate estimate of a property’s value

2. Neighborhood Boundaries are determined by considering the following:

• natural boundaries (actual physical barriers – ravines, lakes, rivers, and highways or other major traffic arteries)

• differences in land use (changes in zoning from residential to commercial or parkland)

• average value or age of homes

• income level of residents

3. When recording neighborhood data, record the street name or other identifiable dividing line and note the type of area adjacent to the subject neighborhood at the boundary.

4. Stage of Life Cycle – a typical neighborhood will go through four distinct periods in its life: growth, equilibrium (stability), decline, and revitalization (rehabilitation). During growth, property values increase until few vacant building sites remain. Then the neighborhood will stabilize at their highest monetary value and prices rarely fluctuate downward. With increasing property deterioration, the area usually declines in both value and desirability. The neighborhood’s life cycle may start over again due to revitalization – a period when demand increases, providing the stimulus needed for neighborhood renovation.

5. The appraiser must be sensitive to all of the factors that determine value, including economic, social, and governmental influences, to accurately gauge their effect on neighborhood development.

6. Proximity to Hazards and Nuisances – environmental factors and the discovery of more factors that are injurious to health or safety have made some properties undesirable. As a general rule, every prospective property developer in every part of the country should arrange for an independent analysis of the soil and any existing structures to determine the presence of any contaminants. Other nuisances include location in an airport flight path, location near a train track, location near high tension electrical wires or proximity to commercial buildings.

7. Site Data – first need is a complete and legally accurate description of the property’s location; a sketch to show the property’s approximate shape and street location; topography and proximity to any natural hazards such a floodplain, earthquake fault zone, or other potentially dangerous conditions; size in square feet, location on the block, utilities, improvements, soil composition, and view should all be noted; other things to take note of include:

• soil quality, water quality, and water drainage for agricultural property

• current and possible future zoning considerations

• easements and deed restrictions

• any land areas held in common with other property owners, such as sporting areas (pools, tennis courts, etc.)

8. Building Data:

• Exterior Features – approaching the house from the street, the appraiser gets a first impression. The landscaping is noted and the exterior construction materials are recorded as well as their current condition. Finally, the appraiser measures each structure on site, sketches its dimensions, and computes its area in square feet.

• Interior Features – once inside, the appraiser notes the major construction details and the fixtures, particularly the interior finish, the kind of floors, walls and doors, the condition and adequacy of the kitchen cabinets, the type and condition of the heating and a/c systems, paneled rooms, fireplaces, and any other feature of note. The appraiser determines the general condition of the interior and records room dimensions and total square footage. Always ask for disclosure requirements such as the existence or possibility of lead paint.

• Depreciation – the appraiser is looking for signs and the degree of the three types of depreciation: 1) physical deterioration – the effects of wear-and-tear and the action of the elements 2) functional obsolescence – the absence or inadequacy of features in the design, layout, or construction of the building that are currently desired by the purchasers, or the presence of features that have become unfashionable or unnecessary 3) external obsolescence – a feature made undesirable or unnecessary because of conditions outside of the property

• Multiunit Buildings – a multiunit building will have more information to evaluate than a single-family residence, possibly in many categories. Many appraisers will utilize a checklist of items to be inspected, which will lead to most of the deficiencies in a building if they exist. It will also lead the appraiser to the special features of the multiunit property as well. These appraisals are similar to those of residential property, but much more detailed and in depth.

V. Data for Sales Comparison Approach

A. most widely used approach for valuing residential property and vacant land

B. the appraiser collects sales data on comparable nearby properties that have sold recently, then makes market-derived adjustments reflecting individual differences between the subject and comparables. As a formula, the sales comparison approach is:

Sales Price of Subject Property ± Adjustments = Indicated Value of Subject Property

C. the sales comparison approach relies on the principal of substitution

D. every parcel of real estate is considered unique; there will always be features that make one property different from another

E. it is critical in the sales comparison approach for the appraiser to chose comparable properties that as close to the subject property as possible, both in distance and in features; because the sales comparison approach makes use of market data, it is also called the market data or direct market comparison approach

F. sales comparison approach can be used for many types of property, but it is best for single-family owner-occupied residential properties

G. only recent sales should be considered in this approach, they must be arm’s length transactions and the properties must be similar to the subject

H. Recent Sales - a property sale should have occurred fairly close to the date of the appraisal; in a normal market, sales within six months are acceptable; slow market – up to one year

I. Similar Features – appraisers should limit themselves to using comparables that have been sold in the neighborhood or immediate vicinity; because most homes in a subdivision are built by the same builder it is not difficult to find conformity between homes in the same subdivision; properties that are atypical become very difficult for an appraiser to deal with

Massed produced housing is a fairly recent phenomenon. Levittown, New York was a perfect example of this mass produced housing and it was built on Long Island during the 1940’s.

If a home is more distinctive, an appraiser task is more complicated and must find comparables that come as close as possible to as many of the property specifications as possible. The features that have the greatest effect on the value will be the most important ones.

Site characteristics that have the greatest effect on value include location, size, view, topography, availability of utilities, and presence of mature trees and other plantings.

Though adjustments may be made for some differences between the subject property and the comparables, most of the following factors should be similar:

• style of house • size of lot • age

• size of building • number of rooms • terms of sale

• number of bedrooms • type of construction • number of bathrooms

• general condition

The comparable sales chosen must provide adequate support for a value conclusion. An analysis of the properties not used directly in the report may be helpful in establishing neighborhood values, price trends, and time adjustments.

J. Financing Terms – the terms of the sale are of great importance, particularly if the buyer has assumed an existing loan or if the seller has helped finance the purchase.

The interest rate may be lower or the seller may have “bought down” the buyer’s interest rate. These scenarios must be considered when considering the sales price of a home.

The appraiser will try not to use these sales as comparables, but sometimes is forced to do so. The selling prices could be adjusted to reflect those variances by using a cash equivalency technique. With one version of this technique, the appraiser compares the monthly payment to be made by the buyer with the required monthly payment on a new loan in the same principal amount, at the prevailing interest rate as of the sale date. The resulting percentage is applied to the amount of the purchase price represented by the principal of the low-interest loan. When this reduced amount is added to the amount paid in cash by the buyer to the seller, the result is an adjusted sales price that compensates for the effects of below-market-rate financing. (See the example on page 130 in the textbook)

If this cash equivalency technique is used to adjust the sales price of any comparable, all of the comparable properties should be so treated. Some appraisers prefer to make this adjustment for the expected holding period of the loan (typically 6 to 8 years), rather than for the full loan term.

Note that use of a cash equivalency technique as the sole method of determining value is not permitted by Fannie Mae and other similar agencies. If an appraiser has no choice but to use properties with varying financing terms, their selling prices should be adjusted to reflect realistically the effect of financing in the marketplace, rather than simply being the result of a mechanical formula.

K. Arm’s-Length Transaction – neither the buyer nor seller is acting under duress, the property is offered on the open market for a reasonable length of time, and both buyer and seller have a reasonable knowledge of the property, its assets, and its defects in an arm’s-length transaction.

If the sale has been forced for any reason, such as in foreclosure, or if the principals are related individuals or corporations, it is not considered to be an arm’s-length sale. Most of the time, an appraiser does not want to use a sale that is not at arm’s-length.

L. Sources of Data – all sales data must be verified by one or more of the principals to the transaction. The sources of data are:

• the appraiser’s own records

• official records of deeds

• the real estate assessor’s office

• records of sales published by some local real estate boards or compiled by sales research services

• newspapers

Information will be sought only on sales that have closed escrow. The appraiser should also note previous sales of the subject property that occurred within at least one year for one-family to four-family residential property and three years for all other property types. This USPAP requirement is meant to encourage close analysis of prior sales of the subject property, but it may also indicate general market conditions.

SITE VALUATION and APPRAISING PARTIAL INTERESTS

I. Separate Site Valuations

A. Cost Approach – use of the cost approach to value is a primary reason for a separate site valuation, because site value must be distinguished from the cost of improvements.

Cost of Improvements – Depreciation on Improvements + Site Value = Property Value

In the cost approach, the term improvement usually refers to a structure only, not utilities.

B. Assessments and Taxation – assessments may require separate site valuations because they are usually based on improvements to the land itself (such as utilities) rather than on any structural changes. Because land is not considered a wasting asset, it does not depreciate.

C. Condemnation Appraisals – courts and condemnors often require that the appraiser separate site and building values in eminent domain cases.

D. Income Capitalization – in the income capitalization approach to finding property value, one method, called the building residual technique requires the appraiser to first find land value. The appraiser then subtracts an appropriate return on this value from the net income earned by the property to produce an indication of the income available for the building.

E. Highest and Best Use – every appraisal includes at least a brief statement of the property’s highest and best use. Most urban and suburban land is zoned for a particular purpose. Houston, which does not have zoning, relies heavily on deed restrictions to limit density and kinds of development. Site approval and building permits also may be required. The optimum combination of factors – resulting in the optimum value – is termed the property’s highest and best use.

Four Tests for Highest and Best Use are as follows:

1. physically possible

2. legally permitted

3. economically feasible

4. maximally productive

Physically Possible – a site’s use may be limited by its size, shape, and topography. Access to the site is important if it is to sustain development. Utilities must be available.

Legally Permitted – zoning regulations are an exercise of police power by a municipality or county to regulate private activity by enacting laws that benefit the health, safety, and general welfare of the public. Zoning regulations typically include:

• permitted uses

• minimum lot-size requirements

• types of structure permitted

• limitations on building size and height

• minimum setbacks from lot lines

• permitted density (for example, the number of buildings per acre)

An appraisal report should always include the property’s current zoning classification. Any proposed changes to current zoning should also be mentioned.

A zoning variance allows a change in the specifications ordinarily required under the zoning regulations.

A non-conforming use is an existing property improvement that would not be allowed under the new zoning or current site’s zoning. Zoning ordinances typically allow an existing structure to remain when the property is rezoned for a different use, although expansion or rebuilding based on the existing use may be prohibited or limited.

A non-conforming use may be an underimprovement – a residential property in an area rezoned commercial or it may represent an overimprovement – such as a “mom and pop” grocery store in an area rezoned residential.

A church in a residential area may be granted a conditional use permit which is permission allowing a use inconsistent with zoning but necessary for the common good.

Not all restrictions on property are imposed by the government. Private restrictions include the conditions, covenants, and restrictions (CC & Rs) found in the typical declaration of restrictions filed by the subdivision developer and incorporated by reference in the deed to each subdivision lot. A homeowner’s association usually is the enforcers of such restrictions.

Economically Feasible – if a site use will not produce a commensurate financial return, it will still be undesirable. Often a site in what is apparently a very desirable location will remain vacant for a long time simply because the cost to develop it cannot be justified on the basis of estimated market demand for any permitted type of improvement.

Maximally Productive – the appraiser analyzes and compares the estimated net operating income of each present of prospective property use in light of the rate of return typically expected by investors in that type of property, to determine which use offers the highest estimated financial return and thus makes the property more valuable.

Vacant (or as if Vacant) – the traditional approach to determining highest and best use is to analyze vacant land or, if the land is improved, to study it as if it were vacant. The appraiser wants to apply what has been termed the theory of consistent use. Both site and improvements will be valued based on the same use.

As Improved – there may be some possibility of a changed use that could result in higher income potential for the property. An older building that has outlived its usefulness for one purpose may undergo a sometimes startling transformation. During a period of intense competition that resulted from an overbuilt market or an economic downturn, or a combination of both, a building may be used for an entirely different purpose. The restaurant building that becomes a church for example.

Interim Use – a property which is not yet at its expected highest and best use. A good example is farmland in the pathway of major development.

II. Site Data

A. Identification – the first step in site analysis is to identify the property. A complete and legally accurate description of the site’s location must be obtained. The plot plan used to illustrate the property description should include the site’s property line dimensions and show its location within a given block.

B Analysis – a report on the site’s highest and best use should be an integral part of the analysis and should include the study of trends and factors influencing value, the data collection program, and the physical measurement of the site. Important features need to be included to include flood zone info or earthquake fault zone info. Easements, deed restrictions, or publicly held rights-of-way should also be noted. Any part of the site that cannot be used for building purposes should be clearly designated, along with other limitations on the use of the site.

III. Environmental Concerns

A. the appraiser must identify potential or actual environmental factors that are likely to affect property value

B. the appraiser should at least note obvious conditions and recommend further inspection

C. for commercial real estate, an environmental site assessment (ESA) or environmental property assessment (EPRA) is probably well-advised to protect the property owner, lender, and others involved in the transaction

D. For appraisal purposes, a conscientious inspection of the subject property should be conducted and suspicious conditions should be noted. Inspection should include but not limited to the following:

• ponds, lakes, creeks, and other bodies of water

• standing water or wetlands, even if seasonal

• high-power transmission lines

• evidence of past commercial or agricultural land use

• underground or above-ground storage tanks or drums

• deteriorating paint

• insulation around water pipes or ducts

• smoke, haze, or other airborne condition

• excessive

• old building foundations or other evidence of a previous structure

• a dump site

Even the presence of an endangered species has an impact on the use and ultimate value of a property.

IV. Methods of Site Valuation

A. Sales Comparison Method – sales of similar vacant sites are analyzed and compared. After adjustments are made, the appraiser arrives at an estimate of value for the subject site. This is the most reliable method of site valuation. Basically, it’s the same method used for residential houses. Typical differences include date of sale, location, physical characteristics, zoning and land-use restrictions, terms of financing, and conditions of sale. The sales price of a site may be expressed as a certain amount per front foot, in square feet, and per lot. (See example on page 145 of textbook)

B. Allocation Method – this method is used when the land value of an improved property must be found. The ratio of land value to building value typical of similar improved properties in the area is applied to the total value of the subject property to arrive at the land value of the subject property. Land value may be treated as a percentage or proportion of the total value of an improved property. In many areas, land and building values have historically held a certain relationship to each other. If the approximate ratio of land value to building value is typically one to four, and a property improved with a structure is valued at $100,000, the land value is one-fifth of that amount, or $20,000. The allocation method is weak, because it fails to take individual property differences into account. Only use this method if there is a lack of current sales data.

C. Abstraction Method – also called the extraction method. When the sales price of a property is known, the cost of all improvements can be subtracted from it to find land value. All improvement costs (less depreciation) are deducted from the sales price, and the amount remaining is attributed to land value. (See example on page 146) This method, though imprecise, may be useful when appraising property when there are few sales for comparison, usually with rural properties.

D. Subdivision Development Method – the costs of developing and subdividing a parcel of land are subtracted from the total expected sales prices of the separate sites, adjusting for the time required to sell all of the individual sites, to determine the value of the undivided raw land. It relies on the accurate forecasting of market demand, including both forecast absorption (the rate at which properties will sell) and projected gross sales (total income that the project will produce). (See example on page 147 of the textbook). Note that even if the developer is also the contractor on the project, the amount of profit attributable to the development function (developer’s profit or entrepreneurial profit) usually is considered a separate item.

E. Ground Rent Capitalization Method – when a landowner leases land to a tenant who agrees to erect a building on it, the lease is usually referred to as a ground lease. Ground rents can be capitalized at an appropriate rate to indicate the market value of the site. For example, assume that a site is on a long-term lease with a ground rent of $100,000 per year. If the appropriate rate for capitalization of ground rent is 10 percent, the estimated value by direct capitalization is $100,000 ÷ .10 = $1,000,000 (I/R = V). Most ground leases of this type are for 50 to 99 years. The provisions of the lease must be known to the appraiser for a complete and accurate appraisal. The appraiser must consider the remaining length of the lease term as well as both the present rent paid and the possibility for a rent increase if the lease contains an escalation clause.

F. Land Residual Method – the net income earned by the building is deducted from the total net income of the property; the balance is earned by the land. The residual or leftover income is then capitalized to indicate the land value. The formula used for this method is:

Property Net Income – Building Net Income = Land Net Income

Land Net Income ÷ Land Capitalization Rate = Land Value

V. Types of Partial Interests

A. Partial interests include any interest that is less than full fee simple ownership of the entire property conveyed.

B. Condominium – the condominium form of ownership, long popular in Europe, has been used widely in this country only within the past 40 years. The owner of a condominium has an exclusive ownership interest in the airspace of a particular portion of real estate, as well as an interest in common in another portion of that property. Unit owners must pay a proportional share of the maintenance and upkeep expenses of the common areas.

Many residential apartments, offices, and retail stores now are in the condominium form of legal ownership.

C. Special appraisal considerations for condominiums include specification of both private and public areas, mention of the exact location of the subject property within the building, and consideration of the upkeep of both public and other units. The appraiser needs to list the monthly association fees, and any special facilities provided such as a tennis court or pool.

D. The best evaluation approach for a condominium is the sales comparison approach. Comparable condominium properties should be similar in building size, unit size, number of owner-occupied units, extent of common areas, and type of amenities.

VI. Planned Unit Developments

A. A planned unit development (PUD) is a subdivision consisting of individually owned parcels or lots, as well as areas owned in common.

B. A PUD may feature detached residences, condominiums, or townhouses (houses on separately owned lots that have adjacent or party walls) and may include both residential and commercial property.

C. Property owners pay association fees for the upkeep of common areas.

D. Some PUDs are comprised of hundreds of separately owned properties with detached residences, one or more swimming pools, tennis courts, clubhouse and other amenities. The more extensive the common areas, the higher the association fees.

E. The best valuation method for a PUD home or condominium unit is the sales comparison approach.

VII. Timeshare Projects

A. The timeshare is a form of vacation property ownership, ranging from campgrounds to city apartments.

B. A timeshare purchaser receives the right to exclusive use of a portion of the property for a particular period of time each year (usually in units of one week).

C. A timeshare estate includes an estate (ownership) interest in the property; a timeshare use does not.

D. A timeshare is also best valued by the sales comparison approach.

E. For some timeshare projects, high initial marketing costs and limited resale potential have resulted in heavily discounted resale prices.

VIII. Manufactured Homes

A. Factory-built homes now account for almost one-third of all new single-family home purchases in the United States.

B. Well-maintained manufactured home subdivisions, offering generous lot space, with lawn areas, well-paved streets, swimming pools, and other facilities, can be inviting places to live and may increase in value.

C. Special considerations for manufactured homes appraised by the sales comparison approach include the age and size of the home, its location, and, if applicable, space rental cost, lease term, subdivision amenities, and upkeep of the subdivision grounds and other units.

D. Some forms of manufactured housing, such as those using panelized construction, may be required to conform to local building codes, and thus are considered equivalent to homes constructed entirely on site.

IX. Other Forms of Ownership

A. Other partial interests include the life estate, easement, cooperative and various forms of co-ownership.

B. Tenants in common share an undivided interest in the property that is the subject of the co-tenancy. This means that each tenant has the right to use the entire property, regardless of the fractional interest owned. The value of a tenant in common’s interest is based on that fraction.

C. Joint tenants, who share the unities of title, time, interest and possession, cannot have unequal shares. Joint tenancy also includes the right to survivorship. The joint tenancy has value while the tenant lives because the tenant is entitled to full use of the property, but the ultimate value of a joint tenant’s interest depends on the actual likelihood that the joint tenant will be the last survivor.

D. An individual tenant’s interest, valued separately, will depend on the type of property and the terms on the co-tenancy. The appraiser must consider the likely desirability of the property to a potential buyer. If the property is easily divisible, the valuation process will be less complicated.

X. Appraising Lease Interests

A. Leased Fee – an owner who leases property for a given period of time creates a leased fee, which represents the lessor’s interest and rights in the real estate. The owner receives a stipulated fee or rent and retains the right to repossess the property at the termination of the lease.

B. The value of the rental payments plus the remaining property value at the end of the lease period, known as the reversion, make up the lessor’s interest in the property.

C. A leased fee interest may be sold or mortgaged, subject to the rights of the tenant.

D. Leasehold estate – the lessee’s interest and rights in the real estate.

E. The lessee’s interest in the property can have value only if the agreed-on scheduled rent is less than the prevailing market rental, or economic rent.

F. If the scheduled rent is higher than the prevailing market rent, the difference is termed excess rent and the tenant has a negative leasehold interest.

G. A ground lease is defined as a lease of land only, on which the tenant usually owns a building or is required to build as specified in the lease.

H. Sandwich lease – when a tenant has a leasehold estate of value, the tenant may sublet that interest. A sandwich lease is created when the lessee sublets the property to a sublessee. The interest of the sublessee under a sandwich lease is called a subleasehold.

XI. Creation of Lease Interests

A. The statute of frauds in most states requires that a lease that will terminate more than one year from the date of agreement must be in writing to be enforceable in a court of law.

B. A lease agreement may cover one or more of the following topics:

1. Gross lease – in a gross lease the tenant usually pays a fixed rental over the period of the lease, and the landlord pays all expenses of ownership, such as taxes, assessments, and insurance.

2. Net lease – under a net lease, in addition to rent, the tenant pays part or all of the property charges, such as taxes, assessments, insurance, and maintenance.

3. Triple net lease – also known as a net, net, net lease or absolute net lease, calls for a fixed rental payment by the tenant plus all operating and other expenses, such as taxes, assessments, insurance, and maintenance.

4. Percentage lease – in a percentage lease, the tenant usually pays a minimum guaranteed base amount plus a percentage of the gross income. The amount paid over the base amount is referred to as overage rent.

5. Escalator clause – an escalator clause provides for periodic increases in rents based on any increase in one of a number of indexes, such as the consumer price index (CPI) or the wholesale price index (WPI).

6. Renewal options – the right at the end of a lease term to renew the lease for the same term or some other stated period. A renewal option usually includes a rent increase at a stated percentage, or based on an index or other formula.

7. Tenant improvements – either the lessor or the lessee may be obligated to pay for such tenant improvements as negotiated in the lease

8. Other lease provisions – a lease may contain a tax-stop clause that allows the landlord to charge the tenant for any increase in taxes over a specified level. An expense-stop clause works in the same way to pass increases in building maintenance expenses on to the tenants on a pro rata basis. A purchase-option or right-of-first-refusal may also be in a lease. In this case, the purchase price may be stated or based on stated formula.

XII. Leased Fee and Leasehold Valuations

A. All leasehold and lease fee valuations are based on the concept that scheduled rent and market rent are not equal. When there is a difference between scheduled rent and market rent, one of the parties, either lessor or lessee, will have a valuable interest in the leasehold or leased fee estate.

B. The value of the lessor’s and the lessee’s interests is found by capitalizing the present value of the income each receives and adding the reversionary value of the land, or land and building, at the expiration of the lease term.

C. Usually, the lessor receives the reversionary value of the property. But some leases provide for payments to the lessee by the lessor for any improvements made by the lessee that will ultimately revert to the lessor.

D. In valuing lease interests, the appraiser must first carefully study the detailed provisions of the lease to determine the rights and obligations of the owner and tenant.

E. Then, the valuation of leased fee and leasehold interests is basically a matter of dividing the value of the property into separate values attributable to each of the various interests.

F. The total of the various interests in the property will approximate the value of the property under free and clear ownership, but may be somewhat more or less.

G. Example:

A property earning a net operating income of $48,000 per year is rented on an annual basis to one tenant. The remaining economic life of the building is 25 years, and the current market value of the land is estimated at $100,000. The rate of interest for similar investments is 14 percent. Based on these facts, and using the building residual technique, the value of the property is obtained.

Estimated land value $100,000

Net operating income $48,000

Land income ($100,000 x 14%) 14,000

Residual income to building $34,000

Capitalization rate for

Building: 14%

Interest rate + 4

Recapture rate 18%

Building value ($34,000 ÷ 18%) 188,889

Total property value $288,900 (rounded)

THE COST APPROACH

I. Cost Approach Formula

A. The present cost of constructing all of the improvements on a site, less their loss in value due to accrued depreciation, is added to the value of the site as if vacant, to determine the property value.

B. The basic economic principle involved is substitution.

C. The formula for the cost approach is:

Reproduction or Replacement Cost – Accrued Depreciation + Site Value = Property Value

D. A drawback to this formula is the value of a new structure is presumed to be equal to its cost. The value of an inappropriate structure may not equal the cost to build it. Another drawback is that builders’ costs may vary greatly, so the appraiser may have to make market comparisons of builders’ costs in the same way that selling prices are compared.

E. Used most often in the appraisal of special purpose properties, such as churches, schools, museums, and libraries.

F. A cost approach estimate is also needed in establishing value for insurance purposes. Insurance claims are based on the cost of restoration; therefore an insurance appraiser is mainly concerned with reproduction cost.

G. Condemnation proceedings and real estate tax assessments are other instances in which a cost approach is necessary.

H. Site value is developed using the sales comparison approach.

I. The cost approach is also called the summation method of appraising because it involves the addition of the building and site values, each computed separately.

II. Reproduction Cost versus Replacement Cost

A. Reproduction Cost – the dollar amount required to construct an exact duplicate of improvements to the subject property at prices current as of the effective appraisal date.

B. Replacement Cost – the dollar amount required to construct improvements of equal utility using current construction methods and materials.

C. Notice that reproduction cost is called for in the Cost Approach section of the URAR form. Sometimes this is not feasible, especially with an older home. If replacement cost is used in the estimate, the appraiser should note that fact in the report.

D. The construction cost is always for a new structure. Allowances for the subject property’s condition are taken into account when determining accrued depreciation.

III. Finding Reproduction/Replacement Cost

A. There are four methods for estimating the reproduction/replacement cost of a structure:

1. Index Method – a factor representing the percentage increase of construction costs up to the date of value is applied to the original cost of the subject property.

2. Square-foot Method – the cost per square foot of a recently built comparable structure is multiplied by the number of square feet in the subject property.

3. Unit-in-place Method – the construction cost per unit of measure of each component part of the subject structure (including material, labor, overhead, and builder’s profit) is multiplied by the number of units of that component part in the subject. Most components will be measured in square feet, others, such as plumbing fixtures, will be estimated as complete units.

4. Quantity Survey Method – the itemized costs of erecting or installing all of the component parts of a new structure are added. Indirect costs (building permit, land survey, overhead expenses such as insurance and payroll taxes, and builder’s profit) are totaled, as well as direct costs (site preparation and all phases of building construction, including fixtures).

B. The square-foot method is the one typically used by appraisers in estimating constructing costs.

C. The quantity survey method is the one generally used by cost estimators, contractors, and builders because all of a structure’s components are analyzed, which yields the most accurate cost estimate. It is very time consuming.

D. Index method is rarely used alone. It is usually used to cross-check figures arrived at by the other methods.

E. Index Method – rarely used alone, it is a useful way to verify cost figures arrived at by one of the other methods. Cost reporting or indexing services keep records of building cost changes over time, and sometimes from area to area. All dollar amounts are given a numerical factor relative to whatever base year is being used. The formula used is:

______Present Index______ x Original Cost = Present Cost

Index at Time of Construction

See example on page 156 of the textbook.

F. Square-foot Method – the appraiser must first find the dimensions of the subject structure to compute the number of square feet of ground area it covers. The appraiser must also find the cost of comparable new structures. The appraiser may also rely on cost manuals such as Marshall and Swift for basic construction costs. These manuals are updated quarterly, and sometimes even monthly.

If the closest example in the cost manual still has significant differences from the subject building, a cost differential could be added to (or subtracted from) the cost per square foot given in the cost manual. Although cost estimates of high-ceilinged structures may utilize the cubic-foot method of estimating reproduction cost, a height adjustment made to the figure arrived at by the square-foot method is usually sufficient. (see example on page 158 in the textbook)

Regional Multipliers – a given example can be used for any area of the country, provided the cost estimate obtained is multiplied by the adjustment factor for that region.

Residential Appraisals – the widespread use of the appraisal report forms prepared by Freddie Mac or Fannie Mae has made the square-foot method of calculating reproduction cost a commonly used technique for residences. With the URAR form, gross living area (derived by using the outside measurements of the house, less nonliving areas) is multiplied by cost per square foot. That figure is then added to the cost of the nonliving areas and other improvements, such as garage and patio, to arrive at the total estimated cost new of all improvements. (See example on page 160 in the textbook).

IV. Unit-in-Place Method

A. In the unit-in-place method of estimating building reproduction cost, the costs of the various components of the subject structure are estimated separately, and then added together to find the total cost.

B. The unit-in-place method provides a much more detailed breakdown of the type of structure being appraised than does the square-foot method. It is more time-consuming and still relies on cost manuals.

C. The following building components can be found in a cost manual such as Marshall and Swift:

foundation interior construction floor structure

heating and cooling system floor covering electrical system

exterior walls plumbing gable roof

fireplace(s) ceiling appliances

roof structure and covering stairway roof dormers

D. See example on page 161 of textbook.

E. The unit-in-place method is based on accurate building specifications and measurements as well as knowledge of current construction costs.

V. Quantity Survey Method

A. The quantity survey method is the least used but most thorough method. This method necessitates a thorough itemization of all the costs expected in the construction of a building.

B. Direct Costs - are costs related to materials and labor and are computed much more precisely than in the unit-in-place method. Every stage of construction is broken down into separate costs for materials and labor. The appraiser must be able to estimate material unit quantities and costs as well as work times and labor rates.

C. Indirect Costs – those involved in necessary, but not construction-related, expenses, such as surveys, payroll taxes, and profit. Note the breakdown of costs in the quantity survey method as illustrated on pages 166 and 167 in the textbook.

D. The last item often included in the construction cost calculation is entrepreneurial profit or developer’s profit. The profit associated with the development function is itemized separately from the contractor’s profit and other indirect costs. The developer is essentially the risk taker. The amount of entrepreneurial profit ultimately received by the developer will depend on the success of the project. The element of risk also includes the possibility of loss if the project is unsuccessful.

E. The builder is not always the developer, therefore a builder’s profit needs to be included in the indirect costs.

F. The profit estimate made by the appraiser should be based on market analysis. It needs to be compared to recent projects of a similar nature and scope.

G. Depending on market practice, entrepreneurial profit can be estimated as a percentage of:

• direct costs

• direct and indirect costs

• direct and indirect costs plus land value

• the value of the completed project

H. An appraiser using the quantity survey method needs a much more comprehensive knowledge of building construction than in the square-foot method or the unit-in-place method. The appraiser must know every facet of building construction – almost as well as the builder does.

VI. Accrued Depreciation

A. Depreciation may be defined as any loss in value from original construction cost. The loss in value may come from wear and tear or the presence of features that are deficient, excessive, or simply currently undesirable. There may be external factors that cause a loss in value.

B. Accrued Depreciation – the total depreciation due to all causes from the time of construction to the date of appraisal.

C. The three categories of depreciation are:

1. Physical deterioration – the physical wearing out of the structure, usually the most obvious form of depreciation. Items exhibiting curable physical deterioration can be repaired or replaced economically; that is, the cost to cure the defect will result in an equal or greater increase in overall property value. Items of physical deterioration that cannot be cured economically are placed within the category of incurable physical deterioration.

2. Functional obsolescence – this results when layout, design, or other features are undesirable in comparison with features designed for the same functions in newer property. It can be the result of a deficiency, the presence of a feature that should be replaced or modernized, or the presence of a feature that is superfluous (superadequate) for the structure’s intended purpose.

Functional obsolescence is curable or incurable. An outdated kitchen is curable. An outdated bath is curable. 8-foot ceilings in today’s market is incurable.

3. External obsolescence (also called environmental, economic, or locational obsolescence) is any loss of value from causes outside the property itself and is almost always considered incurable. Zoning changes, proximity to nuisances, changes in land use, and market conditions can all be causes of external obsolescence.

External obsolescence can be caused by a variety of factors. It is locational when the property’s neighborhood, community, state, or region becomes less desirable and value subsequently declines. It is economic when market conditions lower demand, as during a recession. It is political when a nearby land use is changed by the local governing body to permit a less desirable use, such as a landfill. Even national political decisions can affect value as in the cases of properties near military bases that have been shut down by the federal government.

External obsolescence frequently affects highest and best use, resulting in the existing improvements being an overimprovement. In that instance, the depreciation is functional, not external.

D. Depreciation is the most difficult part of the cost approach equation to estimate accurately. The older the structure, the more likely it is to have deteriorated to a marked degree. Physical deterioration begins the moment an improvement is constructed and continues until it is no longer usable.

E. Every structure has an economic life, also called its useful life, during which it will be functionally useful for its original intended purpose. When a structure no longer can be used, it ceases to serve any profitable purpose.

F. A structure’s economic life may or may not coincide with its physical life, which is the length of time it could physically exist if allowed to remain standing. Most buildings that are torn down are not totally derelict but have instead become uneconomic (unprofitable) in terms of the highest and best use of the site they occupy.

G. A structure’s effective age reflects the quality of its construction and the degree of maintenance it has received. Effective age will be greater or less than chronological age when a structure’s condition differs significantly from that of similar structures in the market area that have had normal maintenance and upkeep, but no remodeling or updating of any kind. The benchmark is a typical residence that has been maintained with no significant improvements but no significant neglect.

H. Remaining Economic Life – the period from the date of the appraisal during which it can be expected to remain useful for its original intended purpose. The phenomenon of gentrification is an example of the desirability that even run-down properties may have if other factors, such as location and high demand, are strong enough.

VII. Age-Life Method

A. The age-life method of computing depreciation (also called the straight-line method or economic age-life method) is the simplest to understand and use. It is based on the assumption that depreciation occurs at an even rate throughout the projected life of a structure.

B. In the age-life method, accrued depreciation is estimated by comparing the effective age of the structure at the time of valuation with its total economic life. Because of differences in quality of construction and the degree of maintenance received, similar structures do not necessarily depreciate at the same rate. For this reason, appraisers normally base depreciation estimates on the effective age of the structure rather than the actual age.

C. The formula for estimating depreciation then is:

Effective Age ÷ Total Economic Life = Accrued Depreciation

A decimal figure, which may be converted to a percentage, results from this equation. This percentage is applied to the structure’s reproduction or replacement cost to estimate lump-sum depreciation from all causes. The depreciation estimate is then subtracted from the cost figure to arrive at value. (See example on page 176 of the textbook).

D. The age-life method has the following limitations:

• It assumes that every building depreciates on a straight-line basis over the span of its economic life. This is generally not true. Depreciation varies with market conditions and the economic cycles of a neighborhood.

• It lumps value loss from all causes into an overall estimate of depreciation.

• It does not distinguish between curable and incurable deterioration.

• Total economic life may be difficult to predict because it refers to a future time. Effective age is also subjective.

E. Variations of the Age-life Method – in one variation of the age-life method of estimating accrued depreciation, known as the modified effective age-life method, the cost to cure all curable items of depreciation, both physical and functional, is estimated first. This sum is then deducted from reproduction or replacement cost new of the improvements. Finally, the age-life ratio is applied to the remaining cost to arrive at depreciation from all other causes. For example:

Replacement cost new $500,000

Less curable items - 50,000

Remaining cost $450,000

Less age-life ratio

(15/75 = .20 x $450,000) -90,000

Building value $360,000

VIII. Observed Condition Method

A. In the observed condition method of computing depreciation (also known as the breakdown method), the appraiser estimates the loss in value for curable and incurable items of depreciation.

B. A curable item is one that can be easily and economically restored or replaced, resulting in an immediate increase in appraised value.

C. An item that would be impossible, too expensive, or not cost-effective to replace is labeled incurable.

D. The following are examples in each of the three depreciation categories:

1. Physical Deterioration – curable. Includes repairs that are economically feasible and would result in an increase in appraised value equal to or exceeding their cost. Items of routine maintenance fall into this category, as do simple improvements that can add far more value than their cost to the value of the property. The loss in value due to curable physical deterioration is the cost to cure the item(s) of depreciation.

2. Physical Deterioration – incurable. Includes the separate physical components of a structure, which do not deteriorate at the same rate. Generally, the individual components of a structure can be divided into short-lived items and long-lived items of incurable physical deterioration. Short-lived items are those that may be replaced or repaired once or more over the economic life of the structure. These include roof, gutters, wall coverings, cabinets, and other finishing materials. Long-lived items are those that should last as long as a structure’s remaining economic life. Foundation, framework, walls, ceilings, and masonry would fall into this category. Loss in value can be based on a percentage reflecting the number of years of remaining economic life of all such items as a group, or they can be depreciated individually.

3. Functional obsolescence – curable. Includes physical or design features that are inadequate or no longer considered desirable by property buyers or that are not necessary for the structure’s intended use but could be added, replaced, redesigned, or removed economically (at a cost no greater than the resulting increase in value). Examples: outmoded plumbing fixtures, converting a bedroom next to kitchen to a family room or a closet to a darkroom.

4. Functional obsolescence – incurable. Includes currently undesirable physical or design features that could not be easily or economically remedied. The feature might be the result of a deficiency, a lack of modernization, or a superadequacy. Another form of incurable functional obsolescence is the misplaced improvement, a structure that is inappropriate for the site on which it is located. The loss in value caused by incurable functional obsolescence could be estimated by comparing either the selling prices or rents of similar structures with and without the defect. Whether a misplaced improvement will result in a lowering of estimated market value will most likely depend on how adaptable the property is to any other use.

5. External obsolescence – incurable only. This is caused by factors not on the subject property, so this type of obsolescence cannot be considered curable. The appraiser’s market analysis should be thorough enough to reveal any economic or other factors likely to affect market value. The appraiser must be careful not to depreciate the same item more than once when estimating accrued depreciation by the observed condition method.

IX. Capitalized Value Method - The capitalized value method of determining depreciation is also referred to as the rent loss method. In this method, the appraiser determines the loss in income resulting from depreciation by comparing the income produced by similar properties, then applying a capitalization rate to that amount of income to determine its effect on overall property value. It is necessary to have comparable properties that possess the same defect and some that do not, to isolate the difference in rental value due solely to that cause. (See example on page 181 in textbook).

X. Sales Comparison Method

A. The sales comparison method, also referred to as the market comparison or market extraction method, measures accrued depreciation directly from that market; that is by analyzing comparable sales from which depreciation can be extracted.

B. Total accrued depreciation applicable to the subject can be estimated by the following four steps:

1. The land value of a comparable is subtracted from its selling price to find the depreciated value of the improvements.

2. The depreciated value is subtracted from the reproduction cost of the improvements to find the dollar amount of depreciation.

3. The dollar amount of depreciation is divided by the age of the improvements to find the depreciation rate, expressed as a percent of total depreciation per year.

4. If the depreciation rate is fairly consistent for at least several comparables, the appraiser applies that percent, multiplied by the age of the subject property’s improvements, to the reproduction cost of those improvements. The resulting figure is the dollar amount of depreciation for the subject property. (See example on page 182 in the textbook).

C. While sales comparison is a reliable method of measuring accrued depreciation, its accuracy depends on the existence of truly comparable sales of both improved properties and vacant sites. It also requires an accurate estimate of reproduction cost new of the subject improvements.

XI. Itemizing Accrued Depreciation

A. To make the most accurate and thorough use of the cost approach, the appraiser must compute applicable depreciation in each category (physical deterioration, functional obsolescence, and external obsolescence), and then subtract those figures from the reproduction or replacement cost of the improvements.

B. The appraiser lists all items within a category and determines the amount of depreciation attributable to each.

C. In general, the best approach is to estimate a percentage of depreciation for each feature. Those percentages can be computed and the resulting figures added to find the total loss in reproduction cost. (See example on page 183 in the textbook).

D. Because long-lived incurable physical deterioration is usually based on general wear and tear of items not separately measured by the appraiser, the economic age-life method of computing depreciation is applied to the reproduction cost remaining after the full value of other items of physical deterioration has been subtracted. (See example on page 184 in textbook).

E. Functional and external obsolescence may be derived by any of the methods mentioned in this chapter. When all categories of depreciation have been applied to the reproduction or replacement cost, the land value of the property is added to the depreciated value to determine the final market value estimate by the cost approach. (See example on page 184 in the textbook).

XII. Cost Approach Using the URAR Form

A. In the Cost approach analysis section of the URAR form, the appraiser is required to:

• estimate the value of the site

• compute the area of the dwelling

• estimate the reproduction cost of the dwelling at current market prices; additional lines are provided for calculating the cost of any property features not included as part of the square-foot estimate of the main living space, such as a porch, deck, or patio

• compute the area of any garage, carport, or other structure and estimate reproduction cost at current market prices

• estimate the amount by which the structures have depreciated

• estimate the “as is” value of any other site improvements, such as landscaping, driveway, fences, and so on, provided they are not included in the Estimated Site Value line

• add site value to the depreciated cost of improvements to find the indicated value

• explain in the Comments section how the cost approach was applied; comment on items such as the source of cost data, types of depreciation found, and how the site value was derived.

B. The appraisal usually will include an addendum showing a rough sketch of the perimeter of the subject structure(s), with dimensions given in feet.

THE SALES COMPARISON APPROACH – PART I

I. Step 3: Gather, Record, and Verify the Necessary Data

A. Comparison Grid – the Sales Comparison Analysis section of the URAR form lists the common significant property variables that warrant price adjustments. The subject property and each comparable should be identified by street address. The proximity of each comparable to the subject should be noted. The sales price and source of the market data used is also recorded. The price per square foot of gross living area for the subject and comparables is then entered.

B. All of the details of the subject and comparable properties are then entered on to the grid.

C. Although years of experience may give an appraiser some intuitive knowledge of the value of the property, the figure in the appraisal report must be based on facts as much as possible.

D. The adjustment value of a property feature is not simply the cost to construct or add that feature, but instead what a buyer is willing to pay for it, typically a lesser amount.

E. An appraiser must avoid the temptation to make adjustments that match a value that “feels” right for the subject property. The appraiser’s report to the client must present the facts on which the value estimate was reached, rather than on a preconception of value.

F. The appraiser should use his/her intuition as a check on the final adjusted property value. If it is too high or low, the appraiser may have failed to consider certain adjustment factors.

G. The accuracy of the sales comparison approach relies on the categories selected for adjustments and the amount of any adjustments made. The categories selected on the grid are the most significant factors because they have the greatest effect on value.

H. The appraiser should always use properties of similar construction quality when estimating the market value of property variables.

I. Sales or Financing Concessions – this must be considered if a sale involved nonstandard financing terms such as a down payment, type of loan, or terms of loan.

J. Date of Sale/Time – adjustment will probably be necessary for a sale made six months or more before the date of the appraisal.

K. Location – the comparable properties should be in the same neighborhood as the subject property. When a property is rural, it may be necessary to chose properties that may be in the same type of neighborhood, or just similar to the subject. However, even within the same neighborhoods, locations can offer significant variances, such as front footage on heavily traveled streets, or proximity to a park, or proximity to a noisy railroad track or highway. Corner lots no longer automatically command higher prices for single-family residences.

L. Leasehold/Fee Simple – the property interests appraised should be the same for the subject property and comparables.

M. Site/View – parcel size should be given and the site rated as good, average, fair, or poor on the basis of physical features as well as view.

N. Design and Appeal – conformity is the rule of thumb here; the design should be compatible with others in the neighborhood.

O. Quality of Construction – if not the same as or equivalent to the subject property, this can be a major adjustment. Usually, if in the same subdivision, the quality of construction is similar. A guide such as Marshall & Swift can be very helpful in making this determination.

P. Age – most subdivisions are completed within a relatively short period of time, so if comparables are in the same neighborhood, the age difference is insignificant. Up to five years, is generally not considered to be significant. Age may lead to outdated design or physical deterioration and this must be accounted for in the appraisal.

Q. Condition – the overall condition of a property will be noted as good, average, fair, or poor. Adjustments need to be applied if different.

R. Above-grade Room Count/Gross Living Area – a major adjustment would be needed if the subject property had fewer than three bedrooms and the comparables had more. Total gross living area of a home generally includes only the above-grade, finished living areas and not basement areas, whether completely or partially below grade, even they are finished with the same materials and quality of construction used in the rest of the house. An exception to this is allowed if the below-grade living space is typical of homes in the area, and is considered to add to property value.

S. Basement and Finished Rooms Below-grade – the appraiser should note any below-grade improvements, such as a finished basement.

T. Functional Utility – this category includes design features, such as layout and room size, that are currently desirable.

U. Heating/Cooling – needs to be noted and compared.

V. Energy-efficient Items – high R-factor insulation, solar heating units, or other energy conservation features should be noted.

W. Garage/Carport – this is usually a fairly substantial adjustment.

X. Porch, Patio, Deck, Fireplace(s) – these amenities add to a home’s value, and an adjustment factor is indicated if the subject and comparables are different.

Y. Fence and/or Pool – this is any other structure not considered to be part of the primary house. Adjustments for such features should reflect local market expectations and buyer requirements.

II. Step 4: Determine Highest and Best Use

A. PLEM:

1. Physically possible

2. Legally permitted

3. Economically feasible

4. Maximally productive

B. Consideration of highest and best use is generally limited to the property’s present legally permitted uses. A change in zoning is occasionally possible, and must be considered in a highest and best use analysis. For the appraiser’s purpose, only existing permitted land uses are considered unless otherwise specified by the client.

III. Step 5: Estimate Land Value

Because house (improvements) and lot are being valued together in the sales comparison approach, it is not necessary to make a separate estimate of land value in this approach. It was done in the cost approach.

IV. Step 6: Estimate Value by Sales Comparison Approach

A. Data analysis – the most difficult part of the sales comparison approach is determining the amount of each adjustment. The accuracy of an appraisal using this approach depends on the appraiser’s use of reliable adjustment values. The value of the same feature may vary for different types, sizes, and overall values of property. If an appraiser completes an adjustment chart for as many as 10 to 20 or more properties, a market pattern may be more evident, and the value of individual differences may be estimated fairly accurately. If personal property was included in a comparable sale, the value of the items should be noted as an adjustment factor.

B. Types of Adjustments – most often a dollar adjustment is used to indicate

• the value of a desirable feature present in the subject property but not the comparable, resulting in a plus (+) adjustment to the sales price of the comparable

• the value of a desirable feature present in the comparable but not the subject property, resulting in a minus (-) adjustment to the sales price of the comparable

C. Another way to adjust the sales price of a comparable is to use a percentage adjustment, indicating the overall effect on market value of the factor valued. This percentage adjustment is then converted to a dollar amount.

D. Compute Adjustment Values – The Sales Price Adjustment Chart (or matrix) is a source of information for adjustment values that can be used in the sales comparison approach. The appraiser can develop such a chart and use it to substantiate dollar amounts for adjusted values. (See example on page 205 of textbook).

For the background of adjustment values, the appraiser analyzes as many properties as needed to be able to isolate each significant variable. Most neighborhoods have similar types of properties, so this is not as difficult a task as it first may appear.

This method of determining value relies on a technique called matched pairs analysis (MPA), paired sales analysis, or paired data set analysis. In matched pairs analysis, the appraiser compares the features and sales prices of comparable properties. A sufficient number of sales must be found to allow the appraiser to isolate the effect on value of the pertinent factor. Often this is not possible, and the appraiser’s judgment becomes especially critical in determining the relative values to assign to multiple property variables.

An appraiser will need two or more instances of each variable as a check on the accuracy of an adjustment value.

E. Time Adjustment – review bottom of page 206 in the textbook

F. Highway Location – for residential properties, this generally a negative

G. Commercial Area – if a residential property is in a commercial zone and the subject and other comparables are not, the property would not be a good choice as a comparable because its land value could be considerably higher than the others. Remember, whenever possible, always try to compare apples with apples and oranges with oranges.

H. Sequence of Adjustments – To reflect all adjustments accurately, the appraiser should make adjustments in sequence, with those affecting the overall property value being made first, followed by those affecting only individual property features. If any adjustment is required to account for sales or financing concessions, the adjustment is made to the sales price before any other adjustment is made to determine a normal sales price. If an adjustment is required to account for a change in market value over time since the date of sale of the comparable, that adjustment is made next, the result being a time-adjusted normal sales price (TANSP). Only after those adjustments are made does the appraiser make a final adjustment on the basis of differences in individual property features.

Adjustments to the comparables should be made in the following order:

1. sales or financing concessions

2. time

3. location

4. physical characteristics

I. Record Information – the details of the subject property are recorded, as well as the selling prices and details of the comparables. Then the adjustment values for the features that differ significantly from the subject property must be recorded.

Adjustments are always made to the comparables, never the subject.

SSIA - If the comparable is superior, subtract the adjustment value to the comparables

If the comparable is inferior, add the adjustment value to the comparables

J. Net Adjustments – once the necessary adjustment values are recorded, they can be totaled for each comparable property. Fannie Mae has established guidelines for the net and gross percentage adjustments that review appraisers or loan underwriters may rely on as a general indicator of whether a property should be used as a comparable sale. Generally, the total dollar amount of the net adjustments for each comparable should not exceed 15 percent of the comparable’s sales price. Further, the dollar amount of the gross adjustment for each comparable sale should not exceed 25 percent of the comparable’s sales price. The amount of the gross adjustment is determined by adding all individual adjustments without regard to the plus or minus signs.

If the adjustments do not fall within Fannie Mae’s net and gross percentage adjustment guidelines but the appraiser believes the comparable sales used to be the best available, as well as the best indicators of value for the subject property, an appropriate explanation must be provided. USPAP standards and practice must be followed at all times.

A large total adjustment could indicate that the property sold is not a reliable comparable for the subject property.

K. Value Estimate – using the adjusted values compiled, the appraiser can determine the appropriate estimate of market value to assign to the subject property using the sales comparison approach.

Even when the appraiser is dealing with comparable properties that are virtually identical, the adjusted values will rarely be identical. It is the appraiser’s task to choose the adjusted value that seems to best reflect the characteristics of the subject property. The adjusted value of that property will most likely represent the market value of the subject property.

V. Application of Sales Comparison Approach

A. An obvious advantage of the sales comparison approach is its simplicity and rationale. It is easily understood by nonappraisers and preferred by the courts. Relying on past sales information, it gives the appearance of being the most logical and the most objective of the three approaches to estimating value.

B. The principal limitation of the sales comparison approach is the problem of insufficient comparable sales or, even worse, a situation in which no comparable sales exist. If the subject is unique, or if there are no comparable sales available, then the approach cannot be used.

C. Another difficulty is the need for making accurate adjustments, because two properties are seldom identical.

D. The appraiser must be keenly attuned to market conditions and trends. The sales comparison approach should not become a mechanical exercise. The appraiser must always question the reliability of sales data in light of economic, political, and social market pressures.

E. The sales comparison approach is also the preferred method for the appraisal of vacant land.

THE SALES COMPARISON APPROACH - PART II

I. Sales Comparison Approach Definition

The sales comparison approach is the method of estimating value of real property by studying and comparing information of actual sales of the same type, or comparable properties. In this technique, adjustments are applied to each comparable property making dollar value allowances for each significant difference leading to a value for the subject property.

II. The sales comparison approach is most effective when there is ample market activity. This is true because the actions of both buyers and sellers are directly measured. All of the other approaches used by appraisers to determine value require additional, or intermediate steps in the process of estimating value.

III. Principle of Substitution

A. The direct sales comparison or market approach to value is primarily based on the economic Principle of Substitution. This principle states that the value of the subject property is relative to the cost of obtaining a similar existing property with comparable utility.

B. When there is sufficient market activity, the sales comparison approach is the most persuasive approach to value, because it directly measures the reactions of buyers and sellers in the marketplace.

C. This approach is the least effective if there is little to no market activity, or when the subject property type or category is not sold on the open market; such as public buildings or churches.

IV. Various Sources of Market Data

A. Data sources for the Sales Comparison Approach include the following:

1. reporting services such as DeedFax

2. official public records

3. multiple listing services

4. business publications and newspapers

5. brokers, property managers and agents

6. buyers and sellers

7. appraiser’s own data base

8. other appraisers

B. What are the important units of comparison? Typical units of comparison include the following:

1. price per square foot (of land or living area)

2. price per room

3. price per acre or front foot (land only)

4. price per dollar of rent (Gross Income Multiplier)

V. Sales Comparison Formula

The application of the sales comparison approach formula is essentially a two-step process:

1. Determine the adjustment amount using a proper and appropriate technique such as matched pairs or paired sales or market abstraction

2. Using the value derived from the market, adjust the comparables

VI. Matched Pairs (Paired Sales)

A. This is the technique of estimating the value of adjustment by the using the following process:

Two sales, with one item varying, the value of that one item is the difference in the sales price.

Sale price of property with amenity

Minus

Sale price of similar property without amenity

Equals

Value of component

B. Example: A house sells with a garage for $120,000. A similar house without a garage sells for $116,000. The value of the garage, the only real difference between the two properties, is the difference in sales price, or $4,000.

VII. Comparable Adjustments

A. Comparables are always adjusted in the following way:

• If the comparable is superior to the subject, subtract the adjustment amount from the comparable.

• If the comparable is inferior to the subject, add the adjustment amount to the comparable.

SSIA

B. Adjustment Sequence – the following order should be used when applying adjustments to comparables:

1. sales or financing concessions

2. time

3. location

4. physical characteristics

VIII. Sample Case of the Sales Comparison Approach

A. The subject property consists of a 2,000 square foot home with a garage on a 80 foot by 120 foot lot. Four sales of similar homes nearby have closed recently.

• Sale #1 was a 1,900 square foot home with a garage on a 75 by 120 lot that sold for $120,000.

• Sale #2 was a 1,900 square foot home with a garage on a 85 by 120 lot that sold for $123,000.

• Sale #3 was a 1,800 square foot home with a garage on a 85 by 120 lot that sold for $120,000.

• Sale #4 was a 1,900 square foot home without a garage on a 75 by 120 lot that sold for $118,000.

B. Matched Pairs Solution

• Sales 1 and 2 indicate the land adjustment is $300 per front foot.

• Sales 1 and 4 indicate the garage adjustment is $2,000.

• Sales 2 and 3 indicate the living area adjustment is $30 per square foot.

IX. Other Adjustments to the Comparables

A. Financing concessions or sales adjustment – the sales price of a property may include the value of improvements, land and financing. Thus, if the comparable unit sale involved beneficial financing, the first step is the adjustment for financing or the removal of the value of the financing from the sales price. Once the proper adjustment for financing is made, the result is an indication of the value of the subject land and improvements at the time of the sale of the comparable property.

B. Market Conditions or Time Adjustment – the next step is to adjust the comparable for changes in market conditions that may have changed between the date of sale and the effective date of the valuation. When a proper time adjustment is made, the result is an indication of the value of the subject land and improvements as of the effective date of the appraisal.

C. Location Adjustment – step three in the adjustment sequence is to adjust the comparable for difference in location, which is generally the most important physical attribute of a property. Based on the Principle of Externalities, this adjustment if properly applied to the comparables results in an indication of value of the subject land and improvements on the effective date in that location.

D. Physical Characteristics Adjustment – this is the final step in the sequence and is used to adjust the comparable for all of the remaining physical characteristics, such as physical condition, quality of construction, size and a variety of other amenities.

X. Reconciliation of Value Indications

This is the final procedure in the Sales Comparison Approach to value. The appraiser must reconcile the various indications of value of the comparables. Often, this reconciliation involves the weighting of individual indications of value in which greater emphasis is placed on the indications of value of those comparables that required the least adjustment.

XI. Comparables Adjustment Sample

Comparables are adjusted on the following basis: If the comparable is superior to the subject, subtract; and if the comparable is inferior, add.

Example: The subject property consists of a 2,000 square foot home with a garage on an 80 x 120 foot lot. Four sales of similar homes nearby have closed recently.

• Sale #1 was a 1,900 square foot home with a garage on a 75 x 120 lot that sold for $120,000.

• Sale #2 was a 1,900 square foot home with a garage on an 85 x 120 lot that sold for $123,000.

• Sale #3 was a 1,800 square foot home with a garage on an 85 x 120 lot that sold for $120,000.

• Sale #4 was a 1,900 square foot home with a garage on a 75 x 120 lot that sold for $118,000.

Solution:

Sales 1 and 2 indicate the land adjustment is $300 per front foot.

Sales 1 and 4 indicate the garage adjustment is $2,000.

Sales 2 and 3 indicate the living area adjustment is $30 per square foot.

ADJUSTMENT GRID

|ITEM |SUBJECT |SALE 1 |SALE 2 |SALE 3 |SALE 4 |

|PRICE | |$120,000 |$123,000 |$120,000 |$118,000 |

|LOT SIZE ADJUSTMENT |80 X120 |75 X120 +$1,500 |85 X 120 |85 X 120 |75 X 120 +$1,500 |

| | | |-$1,500 |-$1,500 | |

|LIV. AREA ADJUSTMENT |2,000 SF |1,900 SF +$1,500 |1,900 SF +$1,500 |1,800 SF +$4,500 |1,900 SF +$1,500 |

|GARAGE ADJUSTMENT |YES |YES $0 |YES $0 |YES $0 |NO $2,000 |

|NET ADJ. | |+$3,000 |$0 |+$3,000 |+$5,000 |

|GROSS ADJ. | |$3,000 |$3,000 |$6,000 |$5,000 |

|ADJ. VALUE | |$123,000 |$123,000 |$123,000 |$123,000 |

XII. Underwriter General Rules

A. Total of net adjustments not to exceed 15% of the sales price.

B. Total of gross adjustments not to exceed 25% of the sales price.

C. Any one adjustment not to exceed 10% of the sales price.

XIII. Questions on the Sales Comparison Approach

Example:

| |SUBJECT |NO. 1 |NO. 2 |NO. 3 |

|SALES PRICE | |$200,250 |$190,000 |$195,000 |

|CONDITION |AVERAGE |GOOD |AVERAGE |AVERAGE |

|LIVING AREA |2,500 SF |2,450 SF |2,200 SF |2,500 SF |

|BEDROOMS |3 |4 |3 |4 |

|BATHROOMS |2 |3 |2 |3 |

|CAR STORAGE |CARPORT |GARAGE |GARAGE |CARPORT |

|FIREPLACE |YES |YES |YES |NO |

Which comparable has the least percent of net adjustment?

A. comparable No. 1 C. comparable No. 3

B. comparable No. 2 D. comparables Nos. 1 and 2 have the least

Which comparable has the largest percent of gross adjustment?

A. comparable No. 1 C. comparable No. 3

B. comparable No. 2 D. comparables Nos. 2 & 3 have the most gross adjustment

Which comparable would be considered the best comparable?

A. comparable No. 1 C. comparable No. 3

B. comparable No. 2 D. comparables Nos. 2 and 3 are the best comparables

In choosing comparables for a single-family home located in a neighborhood in which most homes have sold in a price range of $180,000 to $220,000:

A. the best comparable is probably located in a neighborhood on the opposite side of town with a price range of $210,000 to $250,000

B. the best comparable is probably located in an adjacent neighborhood with a price range of $140,000 to $180,000

C. the best comparable is probably located in a subdivision one mile away developed by the same contractor

D. the best comparable is probably located within the same subdivision as the subject

The proper sequence of adjustments in the Sales Comparison Approach is, in order,

A. living area, time, location, financial concessions

B. living area, location, and room count

C. financial concessions, time, location, physical differences

D. location, time, living area, room count, car storage

The amount of the adjustment to the sale price of the comparable for beneficial financing or sales concessions should be:

A. no adjustment, if the concession is less than 2 percent

B. determined by cash equivalency calculations

C. a dollar for dollar amount of the concession

D. market reaction to the concession

All of the following are items of adjustment EXCEPT:

A. the loan to value ratio C. sales or financing conditions

B. market conditions D. landscaping

Example:

|SUBJECT |No. 1 |No. 2 |No. 3 |No. 4 |No. 5 |

| |$160,000 |$172,000 |$162,000 |$179,000 |$166,000 |

|2,500 SF |2,400 SF |2,700 SF |2,500 SF |2,800 SF |2,600 SF |

|110 X 110 |100 X 100 |120 X 100 |100 X 100 |130 X 100 |110 X 100 |

|4 BDRMS |3 BDRMS |4 BDRMS |3 BDRMS |5 BDRMS |3 BDRMS |

|3 BATHS |2 BATHS |2 BATHS |2 BATHS |3 BATHS |2 BATHS |

An analysis of the five comparables indicates that the adjustments are:

I. $20 per square foot of living area

II. $100 per front foot of lot

A. I only B. II only C. both I and II D. neither I nor II

An analysis of the five comparables indicates that the adjustments are:

I. $2,500 per bedroom

II. $1,000 per bath

A. I only B. II only C. both I and II D. neither I nor II

The value of the subject residence is:

A. $165,000 B. $166,000 C. $167,000 D. $168,000

In the Sales Comparison approach adjustments are made:

A. to the contract price if a sale of the subject property is pending

B. to the subject if the seller is granting a financing concession

C. always to the comparable property

D. usually to the comparable, unless the subject is inferior

Which of the following differences is likely to have the greatest effect on the value of a single-family residence?

A. car storage C. the number of bathrooms

B. living area D. a swimming pool

Adjustments for sales concessions are based on:

A. the cash equivalency of the dollar value of the points paid by the seller discounted to present value for the life of the typical loan

B. the appraiser’s judgment of how the market perceives the concession

C. the present value of the cash contributed by the seller at the closing

D. the cash equivalency of the financing or sales concession

Which appraisal principle is the basis of the Sales Comparison Approach?

A. balance B. anticipation C. substitution D. externalities

Example:

The subject is a single-family residence with a living area of 2,000 square feet and a swimming pool. Comparable No. 1 was a 2,100 square foot home with a pool that sold for $180,000. Comparable No. 2 was a 2,300 square foot home with a pool that sold for $185,000. Comparable No. 3 was a 2,300 square foot home without a pool that sold for $180,000.

What is the indicated adjustment for living area?

A. $15 per square foot C. $25 per square foot

B. $20 per square foot D. $30 per square foot

What is the indicated adjustment for the pool?

A. $5,000 B. $3,000 C. $1,000 D. $2,500

What is the indicated value of the subject property?

A. $177,500 B. $180,000 C. $182,000 D. $175,000

Example:

| |NO. 1 |NO. 2 |NO. 3 |NO. 4 |

|SALE PRICE |$98,500 |$100,000 |$99,900 |$102,000 |

|GROSS ADJ. |$12,000 |$7,800 |$14,000 |$9,000 |

|NO. OF ADJ. |5 |2 |4 |3 |

|ADJ. SALE PRICE |$103,200 |$102,000 |$101,900 |$104,000 |

Which comparable has the least percentage of net adjustment?

A. comparable No. 1 C. comparable No. 3

B. comparable No. 2 D. comparable No. 4

Which comparable has the least percentage of gross adjustment?

A. comparable No. 1 C. comparable No. 3

B. comparable No. 2 D. comparable No. 4

Which comparable would be considered the best comparable?

A. comparable No. 1 C. comparable No. 3

B. comparable No. 2 D. comparable No. 4

In choosing comparables for a single-family home

I. the best comparable is located within the same subdivision

II. the best comparable is one located in a competing subdivision if no comparables exist within the same subdivision

A. I only B. II only C. both I and II D. neither I nor II

In analyzing recent sales, you discover a single-family residence with a fireplace sold for $95,000. A similar house without a fireplace sold for $94,500. What does the market indicate about the value of the fireplace?

A. not possible to determine from the information given

B. a fireplace as a value of $500

C. a fireplace costs $2,000 to construct

D. the value of the fireplace is more than the cost of construction

Positive adjustments are made to the subject

A. when the subject is superior to the comparable

B. when the comparable is superior to the subject

C. when the sale price is affected by beneficial financing

D. none of the above

The Sales Comparison Approach

I. may be used to appraise most income-producing properties

II. normally results in a higher indication of value than the Cost Approach

A. I only B. II only C. both I and II D. neither I nor II

When employing the Sales Comparison Approach

I. the Gross rent Multiplier is not a suitable unit of comparison

II. the comparable’s sale price per square foot of living area must be adjusted for differences with the subject

A. I only B. II only C. both I and II D. neither I nor II

Which of the following differences is likely to have the greatest effect on the value of a fourplex?

A. the condition of the roof cover C. living area in each unit

B. the number of bedrooms in each unit D. the type of exterior walls

Data gathered from the market is utilized in:

A. the Cost Approach C. the Income Approach

B. the Sales Comparison Approach D. all three approaches to value

In analyzing recent sales, you discover a single-family residence with a one-car garage sold for $94,000. A similar house without a garage sold for $92,000. What does the market indicate about the value of a garage?

A. not possible to determine from the information given

B. a garage has a value of $2,000

C. a garage costs $2,000 to construct

D. the value of the garage is less than the cost of construction

Adjustments for living area and room count in the Sales Comparison Approach:

A. are always made to the subject

B. are always made to the comparable

C. should always be based on Reproduction Cost less physical depreciation

D. are always negative when the subject is superior to the comparable

The subject is a 2,500 square foot home with a swimming pool. The comparable that sold for $160,000 is a 2,400 square foot home without a pool. The market indicates a $45 per square foot living adjustment and a $6,000 pool adjustment. What is the indicated value of the subject?

A. $164,500 B. $170,500 C. $173,250 D. $171,000

In choosing comparables for a single-family home

I. the best comparables are usually located within the same subdivision

II. the best comparables are usually located in a competing subdivision if no comparables exist within the same subdivision

A. I only B. II only C. both I and II D. neither I nor II

A single-family residence with a living area of 1,800 square feet sold 9 months ago for $93,500. A residence, similar in most respects except for a living area of 1,700 square feet, sold one month ago for $95,000. Living area adjustment is approximately $20 per square foot. Time adjustment extracted from this market information is:

A. 3.74 percent B. - 5.6 percent C. 5.6 percent D. 3.9 percent

Negative adjustments are always made to the comparables EXCEPT:

A. when the comparable has a larger living area than the subject

B. when the sale price of the comparable is affected by beneficial financing

C. when the subject is in superior condition

D. when property values are declining

Which of the following differences is likely to have the greatest effect on the value of a fourplex?

A. the condition of the kitchen appliances in each unit

B. the number of bedrooms in each unit

C. living area in each unit

D. the type of exterior walls

Positive adjustments are made to the subject:

A. when the subject is superior to the comparable

B. when the comparable is superior to the subject

C. when the market indicates a negative reaction to the improvement

D. none of the above

The Sales Comparison approach:

I. may be used to appraise most income-producing properties

II. normally results in a higher indication of value than the Cost Approach

A. I only B. II only C. both I and II D. neither I nor II

When employing the Sales Comparison Approach:

I. the Gross Rent Multiplier is not a suitable unit of comparison

II. the comparable’s sale price per square foot of living area must be adjusted for differences with the subject

A. I only B. II only C. both I and II D. neither I nor II

Gross Rent Multipliers, Rent Per Bedroom, Rent Per Square Foot are all:

A. used in calculating the operating expenses

B. factors in commercial development

C. units of comparison

D. measures of market appeal

Example:

The subject is a single-family residence with a living area of 2,000 square feet and a garage. Comparable No.1 was a 2,100 square foot home with a garage that sold for $200,000. Comparable No. 2 was a 2,200 square foot home with a garage that sold for $205,000. Comparable No. 3 was a 2,200 square foot home without a garage that sold for $203,000.

What is the indicated adjustment for living area?

A. $35 per square foot C. $45 per square foot

B. $40 per square foot D. $50 per square foot

What is the indicated adjustment for the garage?

A. $1,500 B. $2,000 C. $2,500 D. $3,000

What is the value of the Subject property?

A. $195,000 B. $200,000 C. $205,000 D. $210,000

I. The Income-Based Approaches to Appraisal

A. Income capitalization is a process of converting income into value – anticipation is fundamental to this approach.

B. The principal of anticipation states that value is created by the expectation of benefits to be derived in the future.

C. In the income capitalization approach, the appraiser reduces or discounts anticipated future income to its present worth.

D. The income capitalization approach is based on the premise that there is a relationship between the income a property can earn and the property’s value.

E. Income capitalization is most useful for income-producing investment properties.

F. Other properties can be appraised using an income approach technique called the gross income multiplier method. Similar to sales comparison approach in that it compares rents of similar properties with their selling prices to arrive at an estimated value of the subject property. Usually used for single-family residences.

II. Potential Gross Income

A. Appraiser must first determine a property’s potential gross income which is defined as a property’s total potential income from all sources during a specified period of time, usually one year.

B. Potential gross income includes rent, vending machines, laundry services and parking.

C. Rent is major source of real estate income.

D. Market rent or economic rent is an estimate of a property’s rent potential.

E. To determine market rent, the appraiser must know what rent tenants have paid in the past, and current rent on both the subject property and comparable properties. Estimate of potential rent comes from this analysis.

F. Rent currently being paid by agreement between the user and the owner is called scheduled rent or contract rent. Income properties such as stores or offices have contract rents usually computed per square foot per year. Apartments are usually computed per unit or room per year.

G. Sources of contract rent data include:

• The lessee, the person or company renting or leasing the property

• The lessor, the owner of the property

• The property manager, who maintains the rent roll

• The real estate agent, if property recently sold

H. Scheduled rent paid in past years is called historical rent. An appraiser is looking for trends. Recent rental trends should be emphasized in estimating the current market rental income for the appraised property.

I. Besides rent comparisons, factors such as location, construction of the building, its age and condition, parking facilities, front footage, air-conditioning, and tenant responsibilities must be taken into account for an appraisal.

J. Age of a lease is important. An old lease may reflect a lower rent level than the current level.

K. Various national, regional, and local factors need to be analyzed in deriving market rent. Is there a recession, is a large factory closing, is a large factory being built? Outside economic factors must be considered.

L. Other income can include vending machines, coin-operated laundry, or parking.

M. Important errors made while calculating potential gross income include:

• Leaving out any percentage income that may be paid if the lease is on a minimum-plus-percentage basis (i.e., retail stores)

• Reporting only the actual income for a year and not the potential gross income

• Leaving out equivalent rents for owner-occupied areas and/or managers’ quarters

• Leaving out any “other’ income not derived from rents, such as income from parking garages or lots and from the resale of electricity, heat, or air-conditioning to the tenant

The appraiser must verify all figures by conferring either with the tenants, the real estate broker, or rental agent involved.

N. Gross Rent Multiplier or Gross Income Multiplier

GRM = Sales Price GIM = Sales Price

Gross Rent Gross Income

Because single-family residences usually produce only rental income, the GRM is the method used in their appraisal. Industrial and commercial properties can generate income from many sources and therefore the GIM is used for appraising these properties.

O. Gross income multiplier is also referred to as the potential gross income multiplier. Potential gross income is income derived from all sources before any deduction for vacancy and collection losses or operating expenses.

If vacancy and collection losses are deducted from gross income before the multiplier is derived, it is termed the effective gross income multiplier.

P. Because the potential gross income multiplier converts gross, rather than net income into value, the result can be misleading. The property with the larger net income is certainly more valuable.

III. Effective Gross Income

A. Vacancies, as well as instances of nonpayment of rent, can significantly reduce a property’s income. Vacancy and collection loss allowance is usually estimated as a percentage of potential gross income.

B. Effective Gross Income is derived by totaling potential income from all sources, then subtracting vacancy and collection losses.

C. Vacancy and collection losses increase as competition for tenants increases; they decrease when the demand for desirable properties exceeds supply.

D. Many factors may influence the percentage of vacancy and collection losses selected, including:

• The present and past rental losses of the subject property

• Competitive conditions in the area (rental levels for the subject property and competitive buildings in the neighborhood)

• The estimate of future area population and economic trends

• The quality of the tenants

• The length of the lease

E. An allowance of 5% to 10% often is set for vacancy and collection losses, however, each appraisal assignment requires that this allowance be derived from pertinent market facts.

IV. Net Operating Income

A. The value of an income-producing property is measured by the net operating income (NOI) it can be expected to earn during its remaining economic life.

B. Net operating income (NOI) is calculated by deducting the operating expenses of owning a property from its effective gross income.

C. Operating expenses include the cost of all goods and services used in the process of obtaining and maintaining rental income. NOI is usually listed as an annual amount.

D. Classification of operating expenses – expenses may be classified as follows:

• Variable expenses – out-of-pocket costs for management, wages and benefits of employees, fuel, utility services, decorating, repairs, and other items required to operate the property. These expenses also vary according to occupancy.

• Fixed expenses - costs that are mostly permanent and do not vary according to occupancy, i.e. real estate taxes and hazard insurance

• Reserves for replacement – allowances set up for replacement of building and equipment items with a short life span, i.e. heating systems, roofs, elevators, air conditioners, ranges, refrigerators, carpeting and other normal wear and tear items

The appraiser provides for the replacement of an item by estimating its replacement cost and its remaining economic life or useful life. The annual charge is found by dividing the cost of the item by the number of years of economic life.

E. Expenses for accounting purposes versus expenses for appraisal purposes - There are four types of expenses to the owner that are not operating expenses of real estate:

1. Financing costs – interest on loans

2. Income tax payments – personal income tax payments are not treated as expenses of the property for market value appraisal purposes

3. Depreciation charges on buildings or other improvements – accounting depreciation

4. Capital improvements – i.e. new refrigerators, ranges or storm windows

F. Reconstructing the Operating Statement – the process of adjusting estimated income, eliminating inapplicable expenses, and adjusting the remaining valid expenses is called the reconstruction of the operating statement , also known as stabilization of income and expenses. An appraiser needs to know the true income-producing capability.

G. Operating Statements

Cash Basis – revenue is recorded only when received and expenses recorded only when they are actually paid.

Accrual Basis – revenue recorded for the period is all revenue earned, whether or not it has been actually received during the period; expenses for the period recorded as they are incurred, whether or not actually paid that period.

Individuals usually keep personal accounts on a cash basis while businesses usually prefer accrual base accounting.

H. Apply the GRM to Residential Properties –

Sales Price = GRM

Gross Rent

The appraiser should have recent sales and rental data from at least three properties (more is preferable) that are similar to subject and have sold in the same market area and were rented when sold.

The steps in applying the GRM can be summarized:

1. Estimate the subject property’s monthly market rent.

2. Calculate gross rent multipliers from recently sold comparables that were rented when sold.

3. Based on rent multiplier analysis, derive the appropriate GRM for the subject property.

4. Estimate market value by multiplying the amount of the monthly market rent by the subject property’s GRM.

After determining this range of multipliers, the appraiser must decide which multiplier is most appropriate for the subject property. Careful analysis and judgment are critical. GRM data is only good in a rental-oriented neighborhood, not an almost exclusively owner-occupied neighborhood. GRM should be used only for single family residences.

I. Income Approach Using the URAR Form – in the income approach section of the URAR form, the appraiser is required to:

• Enter the subject property’s monthly market rent estimate derived from the marketplace

• Enter the GRM applicable to the subject property

• Multiply the monthly market rent estimate by the GRM

• Enter the value estimate indicated by the income approach

J. Operating Statement Ratios – these ratios, which are derived from sales and rental data and/or the operating statements of properties similar to the subject, can be used to test the validity of the subject’s estimated operating expenses.

Operating Expense Ratio = Operating expenses

Effective Gross Income

Net Income Ratio = Net Operating Income

Effective Gross Income

The operating expense ratio and net income ratio complement each other in that the two ratios added together equal 1.

K. Break-even Ratio – the ratio of the operating expenses plus the property’s annual debt service to potential gross income.

Operating Expenses Plus Debt Service = Break-even Ratio

Potential Gross Income

The break-even ratio also can be based on effective gross income. The ratio now indicates the break-even point at which all expenses of ownership, including financing costs, are covered by the income generated.

L. Ratios vary according to the type of property being studied.

i.e. hotel – 75% occupancy = break-even point

but for office – 75% is poor and not at break-even point

Ratios are particularly useful tools when they either confirm a property’s income and expenses are in line with those of other properties or indicate an abnormality that warrants further investigation.

Direct and Yield Capitalization

I. Direct Capitalization Formula

A. The direct capitalization formula is:

Value = Net Operating Income

Capitalization Rate

B. The four categories of data needed for an appraisal by the income approach using direct capitalization are:

1. the potential gross income from the property, which includes the annual income from all sources

2. the amount of the expected annual effective gross income from the property, estimated by subtracting anticipated vacancy and collection losses from potential gross income

3. the net operating income, found by deducting normal annual operating and other expenses from the effective gross income

4. the capitalization rate for the property; that is, the rate that can be applied to the property’s net annual income, the result being the appraiser’s estimate of the property’s value

II. Capitalization Rate

A. Income-producing property is usually bought as an investment. The buyer wants the property for the return it will yield on the capital invested or used to buy it.

B. The rate of return the investor receives is the capitalization rate. Put into equation form:

Net Operating Income = Capitalization Rate, or _I_ = R

Value V

C. The formula for the capitalization rate is useful for appraisal purposes because of two corollaries:

Capitalization Rate x Value = Net Operating Income, or R x V = I

Net Operating Income = Value, or _I_ = V

Capitalization Rate R

D. By dividing the estimated net operating income (NOI) of a property by the appropriate capitalization (“cap”) rate, the property’s value may be estimated.

E. There are several ways an appraiser can find a property’s capitalization rate. First, the appraiser can study comparable properties that have recently sold, and assume that the capitalization rate of a comparable property would be approximately the same as that of the subject property. Secondly, the appraiser can analyze the component parts of a capitalization rate and structure one for the subject property.

F. An overall capitalization rate may be developed by evaluating net income figures and sales prices of comparable properties. By definition, comparable properties should have comparable capitalization rates.

G. When the income capitalization approach is used, even a slight difference in the assigned capitalization rate will have a significant effect on the estimate of property value.

H. One percentage point difference in the capitalization rate would make a 12.5 percent difference in the value estimate.

I. By discarding the extremes, the appraiser should have a narrow range of capitalization rates from which the subject property’s capitalization rate can be estimated.

J. The appraiser must use judgment in selecting a capitalization rate that is reflective of most comparable properties.

III. Building a Capitalization Rate

A. Another way of determining a capitalization rate for the subject property is by analyzing the capitalization rate’s component parts, and estimating each of those components for the subject property.

B. The two basic components of the capitalization rate are the recapture rate and the interest rate.

C. An investor who purchases an income-producing property expects two things:

1. Return of investment. This is the right to get back the purchase price at the end of the term of ownership, and is ordinarily expressed as an annual rate. Appraisers refer to this as capital recapture.

2. Return on investment. This return is the investor’s profit on the money used to purchase the property, and is expressed as the interest rate. The interest rate is also referred to as the discount rate, risk rate, or return on rate.

D. Because land does not depreciate, its sales price at the end of the investor’s period of ownership is considered adequate compensation.

E. By analyzing the factors that constitute the interest and recapture rates, the appraiser can determine a property’s capitalization rate and use that and the property’s net income to find its value.

IV. Selecting the Rate for Recapture

A. A building depreciates, meaning its value decreases with the passage of time. An appraiser must add to the interest rate a percentage that will provide for the recapture of the investment in the building.

B. Straight-line Method of Recapture – under this method, total accrued depreciation is spread over the useful life of a building in equal annual amounts. When the building is 100 percent depreciated and presumably economically useless, all of the investment will have been returned to the investor.

C. To find the recapture rate by the straight-line method, divide the total accrued depreciation (100 percent) by the estimated useful years of life of the building.

Annual Recapture Rate = 100%______

Years of Useful Life

D. As a starting point, the appraiser may refer to tables, contained in various cost manuals, that deal with the useful lives of buildings by type.

E. Then the appraiser must consider the factors unique to the subject property, such as its age, its condition, and the area in which it is located.

F. A building most frequently becomes useless through external or functional obsolescence, rather than through physical deterioration.

G. The recapture period is often referred to as estimated remaining economic life. An appraiser estimates the remaining economic life of a property after considering the physical, functional, and external factors involved.

V. Selecting the Interest Rate by the Market Extraction Method

A. In this method, the appraiser finds the interest rate of a comparable property by subtracting the portion of the property’s NOI attributable to building recapture from total NOI, then dividing the remainder by the selling price of the property.

B. Example: Property X sold for $200,000. The site is valued at $50,000, and the building has a remaining economic life of 40 years. Total NOI is $30,000.

The building value is $150,000 ($200,000 - $50,000), and the recapture rate is .025 (1÷ 40 years), so,

$150,000 x .025 = $3,750

The annual recapture of $3,750 is applied to the entire property value of $200,000 to produce an interest rate of 1.875%.

$3,750 ÷ $200,000 = .01875

The net operating income available for building recapture of $3,750 leaves $26,250 ($30,000 - $3,750) as NOI available for the property. Dividing that amount by the property’s sales price:

$26,250 ÷ $200,000 = .13125

The interest rate for property X is thus 13.125 percent. In this example, the overall cap rate for the subject property is .13125 + .01875, or .15, which is 15 percent.

VI. Band of Investment Method – Mortgage and Equity Elements

A. The band of investment method considers the financial components, or “bands”, of debt and equity capital required to support the investment.

B. Not every investor will be satisfied with the same rate of return on an investment.

C. The band of investment method must take into account both the rate required by the lender, and the rate necessary for the equity investor’s desired pretax cash flow.

D. The rate required by the lender is termed the mortgage constant, and is annual debt service expressed as a percentage of the original principal amount.

For example: a $100,000, 30-year mortgage loan at 8 percent has monthly payments of $733.78. Annual debt service is $8,805.36 ($733.78 x 12). The mortgage constant is $8,805.36 divided by $100,000, which is .088, or 8.8 percent.

E. Thus, the rate required by the band of investment method is based on:

1. the capitalization rate for debt, called the mortgage constant

2. the rate of return required (yield) on equity, called the equity capitalization rate

For example: Assume a case in which a mortgage with a 30-year amortization period covering 80% of the value of the property can be obtained at 8% interest, and the buyer requires a return of 10% on the equity portion (the 20% of the value of the property the buyer will invest). Using the band of investment method, the overall rate could be developed as follows:

Percent of

Property’s Return

Total Value Required

Loan .80 x .088 (mortgage constant) = .07

Equity .20 x .10 (equity cap rate) = .02

Overall rate .09 or 9%

In this example, the overall capitalization rate of 9 percent reflects the rate of return required to attract money into the type of ownership position that results when the interests of all participants are taken into account.

VII. Relationship of Capitalization Rate and Risk

A. Several generalizations can be made about the relationship between the capitalization rate and the risk of investment.

High Risk = High Capitalization Rate

Low Risk = Low Capitalization Rate

B. Because high risk implies a high possibility of investment loss, a property with a high risk will have a lower selling price or value than one with a relatively low risk factor. Each of the preceding generalizations thus can be carried one step farther.

High Risk = High Capitalization Rate = Low Value

Low Risk = Low Capitalization Rate = High Value

VIII. Capitalization Techniques Using Residual Income

A. Two techniques by which net operating income (NOI) can be capitalized into value using residual income are:

1. the building residual technique

2. the land residual technique

B. In appraising, a residual, is the income remaining after all deductions have been made. A residual can be either:

1. the NOI attributable to the building after return on land value has been deducted (building residual technique) or

2. the NOI attributable to the land after return on and recapture of the building value have been deducted (land residual technique)

In estimating the value of real estate, each technique will produce approximately the same answer, provided the return (interest rate) and recapture assumptions remain the same for each technique.

IX. Building Residual Technique

A. In order to use the building residual technique, the appraiser must first learn or know the value of the land.

B. The appraiser deducts the amount of NOI that must be earned by the land to justify its value. The balance of the NOI must be earned by the building.

C. The income derived from the building is then capitalized at the interest rate plus the rate of recapture to arrive at the building’s value.

Example: A commercial property is being appraised. The land value has been estimated at $80,000, and the typical rate of return is 12 percent, so the land itself must earn $9,600 ($80,000 x .12) if it is to justify its purchase price. The property should yield a total NOI of $37,000 annually. The residual income to the building, therefore is $27,400 ($37,000 - $9,600).

• The capitalization rate for the building will be the same as that of the land with a recapture rate of 5 percent based on an estimated remaining economic life of 20 years (100% ÷ 20 years = 5% per year). The building capitalization rate is therefore, 17 percent (12% + 5%). The estimated building value is $27,400 ÷ .17 or $161,200 (rounded to the nearest one hundred dollars).

• The value of the building is added to the value of the land to arrive at the total property value, which is $241,200 ($161,200 + $80,000).

• The building residual technique is most useful when land values are stable, and can be determined easily by recent sales of similar sites. This technique is also used when the construction cost of the building and the amount of accrued depreciation are difficult to measure accurately because of the building’s age or unusual design.

X. Land Residual Technique

A. The land residual technique follows the same procedure as the building residual technique – but with the building and land calculations being reversed.

B. Example: Assume that the NOI for a commercial property is $45,000 annually, and the value of the building has been estimated at $225,000. The appropriate interest rate for the building is 11 and seven eighths percent, and the estimated recapture rate is 4 percent.

Assumed building value $225,000

NOI $45,000

Capitalization Rate for Building

Interest Rate 11.875%

Recapture Rate 4.000

Total 15.875%

Interest and Recapture on Building

Value ($225,000 x .15875) -$35,700

Residual Income to Land $ 9,300

Land Value ($9,300 ÷ .11875) $ 78,300

Total Property Value $303,300

C. The land residual technique is used:

1. when the land value cannot be estimated from comparable sales or,

2. when the building is new or in its early life and represents the highest and best use of the land.

When a building is new, value usually is assumed to be equal to reproduction cost.

XI. Valuing the Land and Building as a Whole

A. This is done when the building is very old or when it is difficult to make reliable estimates of either the land or the building value.

B. The appraiser analyzes sales of comparable properties and develops an NOI for each property.

C. Then, using the formula I/V =R, the appraiser computes a range of overall rates from which a rate appropriate to the subject property can be selected.

D. Example: If a comparable property producing an NOI of $12,000 sold for $100,000, then, by dividing $12,000 by $100,000, an overall rate of 12 percent is derived. This rate includes both interest and recapture. Consider several additional properties comparable to the subject producing NOIs that when divided by their selling prices, indicated a yield of approximately 12%. It would seem reasonable to capitalize the NOI of the subject property at the same overall rate – 12%. Therefore, if the NOI of the subject property were $10,000, its value by direct capitalization would be $10,000 ÷ .12, or approximately $83,000.

Reconciliation and the Appraisal Report

I. Definition of Reconciliation

A. Theoretically, all the value estimates derived from the three major approaches should be

exactly the same. In actual practice, this seldom happens. The three different approaches will usually result in three different indications of value.

B. The validity of the methods and the result of each approach are weighed to arrive at the single best and most supportable conclusion of value. This process is also called correlation.

II. Process of Reconciliation

A. Many appraisers believe that if the appropriate kinds of date are available, then all three approaches should be used in an appraisal assignment.

B. Some believe the income approach is not valid for appraising single-family residences, because they are not typically bought for their income-producing capability.

C. The sales comparison approach would not be appropriate for appraising special purpose properties, such as a library or museum, because useful comparable information is not available.

D. In addition, the cost approach cannot be used to appraise vacant land.

E. In reconciliation or correlation, the appraiser reviews his or her work and considers at least four factors:

1. Definition of value sought

2. Amount and reliability of the data collected in each approach

3. Inherent strengths and weaknesses of each approach

4. Relevance of each approach to the subject property and market behavior

F. The appraiser never averages the differing value indications. The appraiser considers all of the factors and the most relevant approach receives the greatest weight in determining the value estimate that most accurately reflects the value sought. Also, each approach serves as a check against the others.

III. Review of the Three Approaches

A. In reviewing the sales comparison approach, the reviewer should check:

• that properties selected as comparables are sufficiently similar to the subject property

• amount and reliability of sales data

• factors used in comparison

• logic of the adjustments made between comparable sale properties and the subject property

• soundness of the value estimate drawn from the adjusted sales prices of comparable properties

• mathematical accuracy of the adjustment computations

B. In reviewing the cost approach, the appraiser should check

• that sites used as comparables are, in fact, similar to the subject site

• amount and reliability of the comparable sales data collected

• appropriateness of the factors used in comparison

• logic of the adjustments made between comparable sale sites and the subject site

• soundness of the value estimate drawn from the adjusted sales prices of comparable sites

• mathematical accuracy of the adjustment computations

• appropriateness of the method of estimating reproduction or replacement cost

• appropriateness of the unit cost factor

• accuracy of the reproduction or replacement cost computations

• market values assigned to accrued depreciation charges

C. In reviewing the income capitalization approach, the appraiser should check the logic and mathematical accuracy of the:

• market rents

• potential gross income estimate

• allowance for vacancy and collection losses

• operating expense estimate, including reserves for replacement

• net income estimate

• estimate of remaining economic life

• capitalization rate and method of capitalizing

• that the gross rent multiplier for the subject property was derived from the current rental incomes

• the mathematical accuracy of all computations

IV. Weighing the Choices

A. An appraiser must decide which of the three approaches to value is the most reliable for the subject being evaluated.

B. The weighing of choices is the part of the process where the appraiser must use judgment and experience to make some very significant calls. This is a point in the process where appraisal goes from a science to an art form.

V. The Nature of Reconciliation

A. The best way to describe the reconciliation process is to define what it is not.

B. Value reconciliation is not the correction of errors in thinking and technique. These corrections are to be made prior to any conclusion of final value.

C. Careful analysis and judgment are used to for reconciling the various indicated values.

D. Reconciliation is not a matter of simply averaging the three value estimates. A simple arithmetic average implies that the data and logic applied in each of the three approaches are equally reliable and should therefore, be given equal weight. Depending on the nature of the property, certain approaches are more valid and reliable with some kinds of properties than with others.

E. Value reconciliation is not a narrowing of the range of value estimates. The value estimates developed from each approach are never changed – unless an error is found.

F. Reconciliation is the final statement of reasoning and weighing of the relative importance of the facts, results, and conclusions of each of the approaches that culminates in a fully justified final estimate of market value.

VI. Types of Appraisals

A. USPAP recognizes two types of appraisals: limited and complete.

B. A limited appraisal is the act or process of estimating value, or an estimate of value performed under and resulting from invoking the Departure Provision.

C. The Departure Provision permits limited departures from sections of the Uniform Standards that are classified as specific guidelines rather than binding requirements. It also says that an appraiser may perform an appraisal that calls for something less than, or different from, the work otherwise required by the specific guidelines, provided that prior to entering into such an agreement:

1. the appraiser has determined that the appraisal or consulting process to be performed is not so limited that the resulting assignment would tend to mislead, or confuse the client, or the intended users of the report

2. the appraiser has advised the client that the assignment calls for something less than, or different from, the work required by the specific guidelines and that the report will clearly identify and explain the departure(s)

3. the client has agreed that the performance of a limited appraisal or consulting service would be appropriate

D. A complete appraisal is defined as the act or process of estimating value, or an estimate of value performed without invoking the Departure Provision.

VII. Types of Appraisal Reports

A. USPAP permits three types of appraisal reports:

1. Self-contained report. A thorough presentation of the data, analyses, and reasoning that led to the appraiser’s estimate of value.

2. Summary report. Although not as complete as a self-contained report, the summary report must contain sufficient information to lead the client to the appraiser’s conclusion.

3. Restricted use report. Made for a specific client and for a stated limited purpose, the restricted use report contains virtually none of the information the appraiser used to arrive at the value conclusion.

B. USPAP requires that each appraisal report must:

• Clearly and accurately set forth the appraisal in a manner that is not misleading

• Contain sufficient information to enable the person receiving the report to understand it

• Clearly and accurately disclose any extraordinary assumption or limiting condition that directly affects the appraisal and indicate its impact on value

VIII. Styles of Written Appraisal Reports

A. Form Style Report – makes use of a standardized form or format to provide in a few pages a synopsis of the data supporting the conclusion of value. The report is usually accompanied by location and plat maps, plot and floor plans, and photographs of the subject property and comparables.

B. A form report may be classified as either a summary or restricted use report, depending on the level of detail presented

C. Form appraisal reports are used by agencies such as the Federal Housing Administration, Fannie Mae, banks, savings associations, and insurance companies for routine property appraisals.

D. The most common form report in use today for residential appraisals is the URAR.

IX. Form 2055

A. Form 2055 is Fannie Mae’s Limited One-Family Residential and Summary Report - a streamlined appraisal form to be used in conjunction with Fannie Mae’s Desktop Underwriter computer program.

B. Form 2055 relies totally on the sales comparison approach. The cost and income approaches are omitted.

C. Form 2055 is a limited appraisal and summary report according to USPAP.

D. Form 2055 consists of nine basic sections:

1. subject

2. neighborhood

3. site

4. improvements

5. sales comparison analysis

6. PUD

7. condominium

8. definition of market value

9. statement of limiting conditions and appraiser’s certification

E. If the drive-by inspection option is used, the only exhibits required are a photograph that shows the front scene of the property, and a street map that shows the location of the subject property and comparables.

F. If both an exterior and interior inspection of the property is required, the standard exhibits needed to support appraisal report forms, such as the URAR, must be included.

X. Narrative Style Report

A. The purpose of the narrative style report is to give the client not only the facts about the property, but also the reasoning that the appraiser used to develop the estimate of value.

B. The narrative style is usually classified as a self-contained report.

XI. Introduction

A. Title Page – an identifying label, or title page, gives name of the appraiser, date of appraisal, and the type of property and its address.

B. Letter of transmittal – formally presents the report to the person for whom the appraisal was made. It is addressed to the client and should include street address, complete and legal description of the subject property, property rights to be appraised, type of value sought (usually market value), appraiser’s value estimate, effective date of the appraisal, and the appraiser’s signature.

C. Table of Contents – a complete listing of the separate parts of the appraisal and all appendixes.

D. Summary of important facts and conclusions – highlights the important facts and conclusions of the report. This section includes the estimate of land value and highest and best use, the reproduction or replacement cost estimate per square foot or cubic foot, the age of the improvement(s) and its depreciated value(s), the gross rental value on a stated occupancy basis, the net income expectancy, the estimate of the value by each of the three approaches, and the final estimate of value.

XII. Suppositions of the Appraisal

A. Type of appraisal and report format – limited or complete appraisal and; self-contained, summary or restricted report

B. Purpose of the appraisal – a statement of the appraiser’s objective

C. Definition of value – should always be defined so the client fully understands the basis for the reported value

D. Date of value estimate – the date as of which the value consideration is applicable

E. Property rights – most of the time a fee simple interest, however, sometimes an appraiser may be asked to make a judgment on value if a zoning change or a deed restriction change is imminent

F. Statement of assumptions and limiting conditions – include the following:

• It is assumed that the legal description of the property as stated in the appraisal is correct.

• The named owner of the property is assumed to be its true owner.

• Unless otherwise stated, there is no legal impediment to the marketability of the property (no “cloud on the title”).

• The land has been valued at its highest and best use, and the improvements at their contributory value.

• Unless otherwise stated, it is assumed that there are no hidden or unapparent property defects or adverse environmental conditions that would affect the estimate of value.

• Although information, estimates, and opinions taken from a variety of sources are considered reliable, no responsibility is taken for the accuracy of such information.

• Unless otherwise agreed, the appraiser will not be required to testify in court concerning the appraisal.

• Disclosure of the contents of the appraisal report is governed by USPAP.

XIII. Presentation of Data

A. National, regional and city data are gathered from office files or previous appraisal reports.

B. Neighborhood data provide important background information that may influence value. The distance to schools, shopping etc.

C. Financing available in the area.

D. Site data including a description of the site, including its shape, area, contour, soil, and subsoil. Census tract identification should be included when available to the appraiser.

E. Utilities – site utilities, their capacities, and how adequately they serve the present or proposed highest and best use(s) should be inventoried.

F. Zoning – a simple statement about the current zoning is not enough. Is it enforced? Is a change imminent?

G. Amenities – community features, such as schools, places of worship, shopping etc.

H. Description of improvements – construction details and finishing, including quality, floor plan, dimensions, design and layout, age and condition, list of equipment or fixtures, and maintenance requirements.

I. Taxes

J. Sales history

XIV. Data Analyses and Conclusions

A. Highest and best use analysis

B. Cost approach

C. Sales comparison approach

D. Income capitalization

E. Reconciliation and final conclusion of value

F. Certification of value – a guarantee that the appraiser, or the appraiser’s agent has personally inspected the property, has no present or contemplated interest in the property, and that the statements in the report are true and correct to the best of the appraiser’s knowledge.

G. Qualifications of the appraiser

H. Supporting Material – addenda usually containing tables of supporting data, maps, photographs, plat and floor plans, and resumes and leases, deeds, contracts, or other items that influenced the appraiser.

APPRAISAL OVERVIEW OF STANDARDS AND ETHICS

I. Appraisal Standards of Practice

A. Every state appraisal License/Certification law requires appraisers to perform work which conforms to “standards of professional practice”.

B. The Uniform Standards of Professional Practice (USPAP) which has been developed by the Appraisal Standards Board of The Appraisal Foundation and published by the Federal Appraisal Sub-Committee of the Federal Financial Institutions Examination Council, has been adopted as the standard practice in virtually every state.

C. USPAP consists of a set of ethics provisions and 10 standards which set forth the proper method of developing and communicating real property appraisals, review appraisals, Consulting services, Mass Appraisal, Personal Property Appraisal and Business Appraisal.

D. The ethics provisions are divided into four sections: conduct, management, confidentiality, and record-keeping. The professional appraisal practice of Real Estate appraisers is regulated by standards 1 through 3, and those appraisers who provide consulting services are regulated by Standards 4 and 5.

II. Synopsis of Ethics Provisions of USPAP

A. Conduct – according to the Conduct Provision, an appraiser must act in an ethical, competent and lawful manner. If an appraiser could reasonably be perceived to be acting as an unbiased third party, he/she must act as one.

B. Management – according to the Management Provision, accepting compensation based on the results of an appraisal is unethical. Any payment in connection with obtaining an appraisal assignment must be disclosed. False advertising is unethical.

C. Confidentiality – according to the Confidentiality Provision, the results of an appraisal, and data termed confidential by the client may not be disclosed to anyone but the client, those authorized by the client, a peer review committee, or those authorized by law.

D. Record Keeping – written records must be prepared for every appraisal assignment and retained for 5 years after preparation, or 2 years after the final disposition of a judicial proceeding, whichever is longer.

E. Competency Provision – before accepting any assignment, an appraiser must:

1. properly identify the appraisal problem

2. have the knowledge and experience to perform the appraisal properly

3. disclose the lack of knowledge or experience to the client and take whatever steps necessary to appraise the property properly

4. disclose in the report the lack of knowledge or experience and the steps taken

F. Departure Provision – an appraiser may accept an assignment to do something less than, or different from, from what is required by the specific guidelines if:

1. the assignment is not so limited in scope that the appraisal would mislead or confuse the client and/or the intended user(s) of the appraisal

2. the appraiser advises the client that the assignment calls for something other than what is normally required by the standards and that the report will contain a statement to that effect.

3. Departure from “binding requirements” is not allowed

In the 1995 version of USPAP, the Appraisal Standards Board for the first time identified two specific types of appraisals, the main distinguishing feature being whether or not the Departure Provision was invoked during the development of the appraisal.

• Complete Appraisal – an appraisal which is developed without invoking the Departure Provision

• Limited Appraisal – an appraisal in which the Departure Provision is invoked

Even if the Departure Provision is invoked, an appraiser is NEVER allowed to produce an appraisal that is confusing or misleading.

III. Standard No. 1: Developing Appraisals

A. In developing a real property appraisal, an appraiser must (no departure):

1. be aware of and correctly use recognized methods and techniques

2. not commit a substantial error of omission or commission

3. not be careless or negligent – committing a series of minor errors resulting in a misleading appraisal

B. Appraisers must follow these specific guidelines (departure permitted):

1. identify the real estate

2. identify the real property interest

3. define the purpose and use of the appraisal

4. consider the extent of data collection

5. describe any special limiting conditions

6. identify the effective date of the appraisal

7. define the value sought. (If market value, state whether the value is in terms of cash, cash equivalency; or if based on sub-market or unusual financing, state the terms and support the value conclusion with market data).

8. consider: easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, etc.

9. consider if a fractional interest, physical segment, or partial holding contributes pro rata to the value of the whole

10. identify and consider any personal property or intangible items that are not real property but are included in the value

11. consider the effect on use and value of the following factors: existing land use regulations, reasonably probable changes to such land use regulations, economic demand, physical adaptability of the property, neighborhood trends, highest and best use

12. understand that land should be appraised as if vacant and available for development to its highest and best use (with a few exceptions)

13. understand that improvements are appraised based on their actual contribution to the value of the site

14. value the site by a proper method

15. perform the three approaches to value and collect, verify, describe, analyze and reconcile:

• comparables to estimate cost new of the improvements

• comparables to estimate accrued depreciation

• comparable sales to estimate the Subject’s value

• comparable rentals to estimate the market rent

• comparable operating expense data to estimate operating expenses

• comparables to estimate capitalization and discount rates

16. base projections of future income and expenses on supporting data

17. in valuing a leased fee or leasehold, analyze the effect on value of the lease terms

18. Analyze the effect on value of the assemblage of the estates or component parts of a property. The whole should not be valued by adding together the individual values of the various estates or component parts.

19. Analyze the effect on value of anticipated public or private improvements, on or off site, as reflected by the market activity on the Effective Date.

20. Consider all proper procedures and market information required, including physical, functional, and external market factors.

21. Appraise proposed improvements only after examining:

• plans, specifications, etc. indicating the scope and character of the improvements

• evidence indicating the probable time of completion

• evidence supporting development costs, anticipated earnings, occupancy projections, and anticipated competition at the time of completion

22. Use all of the above-described information in the development of an appraisal.

An appraiser must (no departure):

1. analyze current Agreements of Sale, options, or listings of the Subject, if normally available

2. consider any prior sale of the Subject Property (1 ear for 1-4 family residences, 3 years for all other property)

3. consider and reconcile the quality and quantity of data in the three approaches and the applicability of each approach.

IV. Standard No. 2: Communicating an Appraisal

A. Each written or oral real property appraisal report must (no departure):

1. be understandable and not misleading

2. contain enough information so those who are expected to rely on it can understand it

3. disclose any unusual assumption or limiting condition and indicate the impact on value

B. Each written real property appraisal report must (no departure):

1. be prepared according to the requirements of one of three formats and identify which of the formats is being used

2. Self-Contained Report must contain 12 listed items on following page.

3. Summary Report must contain 12 listed items on following page.

4. Restricted Report must contain 12 listed items on following page.

C. Each written report must contain a certification similar to the following (no departure):

The appraiser certifies that, to the best of knowledge and belief:

• The facts are true and correct

• The analyses, opinions, and conclusions are unbiased and limited only by the listed assumptions and limiting conditions

• The appraiser has no (or specified) present or prospective interest in the Subject Property

• The appraiser has no (or specified) personal interest or bias regarding the parties involved

• The appraiser’s compensation is not based on a predetermined value or direction of value favoring the client, or on the estimated value, or on a stipulated result, or the occurrence of a subsequent event

• The appraiser’s analyses, opinions, and conclusions were developed and reported according to the standards

• The appraiser (or anyone signing) has (or has not) inspected the Subject

• No one provided significant assistance except those listed in the report.

D. Every oral report (including court testimony) must include the above items if possible.

E. An appraiser signing a report prepared by another accepts full responsibility for everything contained in the report.

V. Standard No. 3: Real Property and Personal Property Appraisal, Review, Development and Reporting

A. In performing an appraisal review assignment involving a real property or personal property appraisal, an appraiser acting as a reviewer must develop and report a credible opinion as to the quality of another appraiser’s work must clearly disclose the scope of work performed in the assignment.

B. The appraisal review requirements in this Standard do not apply:

• The activity of “review” or “audit” in the context of other professions, such as accounting.

• An appraiser’s study of work prepared by other types of experts, such as engineers or other consultants, or to work prepared by an appraiser in a consulting assignment under Standards 4 and 5.

• Review of an appraiser’s work by non-appraisers, such as in “administrative reviews”.

C. In developing an appraisal review, the reviewer must:

• Identify the reviewer’s client and intended users, the intended use of the reviewer’s opinions and conclusions, and the purpose of the assignment.

• Identify the subject of the appraisal review assignment, date of the review, property and ownership interest appraised (if any) in the work under review, date of the work under review and the effective date of the opinion in the work under review, and the appraiser(s) who completed the work under review, unless the identity was withheld.

• Identify the scope of work to be performed.

• Develop an opinion as to the completeness of the material under review the scope of work applicable in the assignment.

• Develop an opinion as to the apparent adequacy and relevance of the data and the propriety of any adjustments in the data.

• Develop an opinion as to the appropriateness of the appraisal methods and techniques used and develop the reasons for any disagreement.

• Develop an opinion as to whether the analyses, opinions, and conclusions in the work under review are appropriate and reasonable, and develop the reasons for any disagreement.

D. In reporting the results of an appraisal review, the reviewer must communicate each analysis, opinion, and conclusion in a manner that is not misleading.

E. In reporting the results of an appraisal review, the reviewer appraiser must:

• State the identity of the client, by name or type, and intended users; the intended use of the assignment results; and the purpose of the assignment.

• State the information that must be identified in accordance with this Standard.

• State the nature, extent and detail of the review process undertaken (i.e., the scope of work identified in accordance with this Standard.

• State the opinions, reasons, and conclusions required, given the scope of work identified in compliance with this Standard.

• Include all pertinent information.

• Include a signed certification similar in content to the following:

I certify that, to the best of my knowledge and belief:

- the facts and data reported by the reviewer and used in the review process are true and correct.

- the analyses, opinions and conclusions in this review report are limited only by the assumptions and limiting conditions stated in this review report, and are my personal, impartial, and unbiased professional analyses, opinions and conclusions.

- I have no (or the specified) present or prospective interest in the property that is the subject of this report, and no (or the specified0 personal interest with respect to the parties involved.

- I have no bias with respect to the property that is the subject of this report or to the parties involved with this agreement.

- my engagement in this assignment was not contingent upon developing or reporting predetermined results.

- my compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of this review.

- my analyses, opinions and conclusions were developed and this review report was prepared in conformity with the Uniform Standards of Professional Appraisal Practice.

- I did not (did) personally inspect the subject property of the report under review.

- no one provided significant real or personal property appraisal or appraisal review assistance to the person signing this certification. (If there are exceptions, the name of each individual(s) providing real or personal property appraisal or appraisal review assistance be stated.)

F. An oral appraisal review report must address the substantive matters set forth in this Standard.

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APPRAISAL MATH

1. The SW¼ of the NW¼ of the NE¼ of Section 10, T2N, R3E of the principal meridian contains:

A. 80 acres B. 10 acres C. 20 acres D. 40 acres

2. An appraiser estimates value of a building at $52,500 using the cost approach; $59,700 using the sales comparison approach; $56,500 using the income approach. What is the final value conclusion, if 30% weight was given to the income approach, and 65% to the sales comparison approach?

A. $16,950 B. $38,805 C. $55,755 D. $58,380

3. If a building has 20,000 square feet of office space, and 50 offices lease the exact square feet, what is the rate of offices per 1,000 square feet in the building?

A. 2.5 to 1,000 (2.5/1,000 or 2.5:1,000) C. 5 to 1,000 (5/1,000 or 5:1,000)

B. 400 to 1,000 (400/1,000 or 400:1,000) D. 4 to 1,000 (4/1,000 or 4:1,000)

4.

The above lot sold for $2.50 per square foot. What was the sales price?

A. $1,125 B. $43,750 C. $7,500,00 D. none of the above

5. If a homeowner alots 4% of the sales price for the coverage of an appraisal fee and closing costs, and the owner wants to net $86,000, how much should the property sell for?

A. $86,000 B. $89,440 C. $89,583 D. $82,560

6. Example: Apply a financing adjustment to this situation:

Sales price: $100,000. Loans: $90,000. Financing terms: 11½% interest for 30 years. Installments to amortize loan: .009903. Current market loan: 13% interest for 25 years. Installments to amortize loan: .011278. The adjusted sales price would be: (round to the nearest 1,000)

A. $79,000 B. $89,000 C. $90,000 D. $100,000

7. In analyzing a lot 6,000 square feet sold two years ago for $30,000, you arrive at the following about subject property: (a) is worth 15% more today, (b) is 10% less valuable because of location, (c) is worth 12% more because of amenities. What is the adjusted price? (round to the nearest 100)

A. $34,800 B. $35,100 C. $35,600 D. $36,200

(SITUS)

Subject Property: 1,450 square foot home

5,000 square foot lot

500 square foot covered porch

All lots are valued at $5 per square foot

| Comparable I |Comparable II |Comparable III |

|Sales price: $75,000 |Sales price: $80,750 |Sales price: $77,500 |

|1,500 square foot home |1,750 square foot home |1,500 square foot home |

|5,000 square foot lot |5,000 square foot lot |5,000 square foot lot |

|no covered porch |no covered porch |500 foot covered porch |

8. What is the dollar adjustment for the home?

A. $2.30 per square foot C. $230.00 per square foot

B. $23.00 per square foot D. $6,000.00 per square foot

9. What is the dollar adjustment for the covered porch?

A. $2,500 B. $2,000 C. $500 D. no adjustment

10. What is the dollar value of the subject property?

A. $76,350 B. $72,000 C. $1,150 D. $77,500

(SITUS)

SUBJECT PROPERTY is a 1,750 square foot home on a 6,000 square foot lot. Market analysis indicates an adjustment of $15 per square foot for the home, and a $5 per square foot for the land.

COMPARABLE: $74,000 sales price, a 1,900 square foot home, and a 6,500 square foot lot.

11. What is the price adjustment for the home?

A. + $2,250 B. - $2,250 C. + $3,250 D. - $3,250

12. What is the price adjustment for the land?

A. + $2,500 B. - $2,500 C. - $3,000 D. + $3,000

13. What is the indicated value of the property?

A. $78,750 B. $73,750 C. $74,250 D. $69,250

14. The subject property is on a 6,000 square foot lot, with a living area of 1,500 square feet. The comparable is on a 5,500 square foot lot, with a living area of 1,350 square feet, and has a value of $75,000. The market data indicates the living area has an adjustment of $15 per square foot and a lot adjustment of $4 per square foot. What is the indicated value of the subject property?

A. $66,950 B. $70,750 C. $79,250 D. $83,100

15. Six months ago, a single family residence sold for $70,000. Property in that area has appreciated 4% each year for the past 3 years. What price adjustment should be made to the property in the sales comparison approach?

A. + $2,800 B. - $2,400 C. + $1,400 D. - $1,400

(SITUS)

A residential lot 50’ x 120’ sold 12 months ago for $40,000. The comparables indicate:

(a) the subject property value has increased $4,400 (11%) in the year since comparable sites prices were analyzed and sold.

(b) in regard to locations, the subject property has increased $2,400 (6%) in relation to the one year old comparable.

(c) in regard to physical amenities, the subject property is $5,200 (13%) less valuable than the comparable.

SALES PRICE TIME LOCATION

DOLLAR BASIS $40,000 + 4,400 2,400 - 5,200

PERCENTAGE BASIS + 11% 6% - 13%

16. What is the final net dollar adjustment?

A. + $6,800 B. - $5,200 C. - $1,600 D. + $1,600

17. What is the final net percentage adjustment?

A. + 4% B. - 17% C. - 13% D. - 4%

18. What is the final adjusted price?

A. $41,600 B. $44,400 C. $34,800 D. $40,000

19. What is the YEARLY GRM in this location?

Comparable I Sales Price: $190,000 Annual Gross Income: $20,000

Comparable II Sales Price: $220,000 Annual Gross Income: $22,000

Comparable III Sales Price: $189,000 Annual Gross Income: $21,000

Comparable IV Sales Price: $205,000 Annual Gross Income: $20,500

A. 9.5 B. 10.5 C. 9.625 D. 10.625

20. Using the data from the preceding question, if a property produces an annual gross income of $25,000, what is the indicated value of the property?

A. $2,597 B. $250,000 C. $240,625 D. $300,000

21. If a property has an annual gross income of $28,000, and the GRM is 9.25, what is the indicated value of the property?

A. $30,590 B. $3,027 C. $267,000 D. $259,000

22. A single family residence is 1,750 square feet with a replacement cost of $37 per square foot. The lot value of the property is $35,000. The house and lot sold for $92,000. The depreciation is:

I. $7,000

II. 11.97%

A. I only B. II only C. both I and II D. neither I nor II

23. A 50 year old office building with an effective age of 25 years, has a total life expectancy of 75 years. How much depreciation has occurred?

A. 66.66% B. 33.33% C. 40% D. 75%

(SITUS)

John has a 2,100 square foot house which is three years old. The replacement cost is $35 per square foot. John has the following repairs and maintenance to do on the property now:

1. repair broken front door lock - $125

2. replace broken microwave oven - $200

3. repair small water leak on front porch - $300

The life expectancy of the property is 50 years. Chronological and effective ages are the same.

The short-lived items in the property have the following description:

| ITEM |NEW COST |PLANNED OBSOLESCENCE |

|Pool |$5,000 |12 years |

|Air Conditioning |$5,000 |12 years |

|Carpet |$3,333 |9 years |

24. What is the dollar amount of the accrued short-lived incurable physical depreciation?

A. $13,333 B. $3,611 C. $10,125 D. $3,333

25. What is the dollar amount of long-lived incurable physical depreciation?

A. $73,500 B. $13,333 C. $60,145 D. $3,610

26. What is the dollar amount of curable physical depreciation?

A. $625 B. $3,611 C. $3,601 D. $5,121

27. What is the total dollar amount of accrued physical depreciation?

A. $625 B. $3,611 C. $13,333 D. $7,846

28. An office building with 8% physical depreciation, 9% functional depreciation, and 10% economic depreciation has a total depreciation of:

A. 24.652% B. 27% C. 300% D. 33.33%

29. A subject property building measures 35’3” x 50’9”, with $35 per square foot replacement cost new. The appraiser’s professional opinion reflects a building depreciation of 6% physical, and 6% functional. Using the cost approach, what is the total value of the property if the lot is 60’ x 120’, and the land sells at $3 per square foot?

A. $62,613 B. $55,325 C. $76,925 D. $76,941

30. An appraiser estimates the land value at $36,000, replacement cost of the building at $89,000, and straight line physical depreciation at 3.2% per year on the 4 year old building. The indicated value of the property is:

A. $120,392 B. $109,000 C. $113,608 D. $111,111

31. A single family residence is 1,500 square feet, with a replacement cost of $28 per square foot. The lot is 50’ x 120’, and sold at $5 per square foot. The total sale price was $70,000. The depreciation is:

I. $2,000

II. 4.76%

A. I only B. II only C. both I and II D. neither I nor II

32. A 40 year old office building with an effective age of 25 years, has an estimated remaining economic life of 50 years. How much depreciation has occurred?

A. 50% B. 80% C. 33.33% D. 20%

(SITUS)

Mike has a 1,850 square foot house which is 2 years old. The replacement cost is $35 per square foot. The life expectancy of the property is 50 years. Chronological and effective ages are the same. John has the following repairs and maintenance to do on the property now:

1. repair broken front door lock - $150

2. replace broken oven - $350

3. repair leak in roof - $400

The short-lived items in the property have the following description:

| ITEM |NEW COST |PLANNED OBSOLESCENCE |

|Air Conditioner Compressor |$4,000 |10 years |

|Roof |$4,200 |10 years |

|Carpet |$1,000 |10 years |

33. What is the dollar amount of short-lived incurable physical depreciation?

A. $9,200 B. $9,000 C. $1,840 D. none of the above

34. What is the dollar amount of long-lived incurable physical depreciation?

A. $64,750 B. $9,200 C. $55,550 D. $2,222

35. What is the total amount of curable physical depreciation?

A. $9,200 B. $900 C. $1,850 D. $2,222

36. What is the total dollar amount of physical depreciation?

A. $900 B. $1,840 C. $2,222 D. $4,962

37. If the land is valued at $30,000, and the replacement cost of the improvements is estimated at $85,000, with a physical depreciation factor of 10%, what would be the indicated value of the property?

A. $103,500 B. $112,000 C. $106,500 D. none of the above

38. A subject property measures 40’6” x 51’9”, with $40 per square foot replacement cost new. The appraiser’s professional opinion reflects a 6% total physical depreciation. Using the cost approach, what is the value of the property if the lot is 60’ x 120’, and sells at $4 per square foot? (round to the nearest 100)

A. $106,300 B. $107,600 C. $105,900 D. none of the above

39. A building foundation is 75’ x 100’. The cost per measured unit is $35.50 per linear foot. What would the reproduction cost be?

A. $6,212.50 B. $12,425.00 C. $7,455.00 D. $266,250.00

40. An office building constructed in 1982 for $250,000 has a cost index of $245.50, and the present cost index is $520. What is the current reproduction cost?

A. $117,788 B. $505,000 C. $529,532 D. $686,250

41. An identical three unit office building can produce a yearly income of $36,000 per year. Each unit leases for $1,000 per month. One unit is vacant for 3 months, and one unit does not pay rent for 3 months. Operating expenses are $300 per month per unit (vacant or occupied). The capitalization rate is 12%. What is the indicated value using the income approach?

A. $300,000 B. $210,000 C. $200,000 D. $160,000

42. A 100’ x 100’ square warehouse building produces a net operating income of $33.50 per front foot. The capitalization rate is 10.25%. What is the value of the building?

I. $32,683.00

II. $3.27 per square foot

A. I only B. II only C. both I and II D. neither I nor II

43. Using the band of investment method, an investor can purchase an office building with a first mortgage financing of 55%, with a 10% interest rate; a second mortgage of 20% of purchase, with a 14% interest rate, and 25% cash by the investors, with a 25% return on equity. Using the band of investment method, the overall capitalization rate would be:

A. 10% B. 2.8% C. 6.25% D. 14.55%

44. An income producing property with a scheduled gross income of $100,000, had a 15% vacancy rate, 5% uncollected rate, and an operating expense of 22% of effective gross income. If the property sold for $520,000, what is the capitalization rate?

A. 11.15% B. 12% C. 13.15% D. 14%

45. Mortgage, interest, and income taxes are $225 per month. A four-plex produces an effective gross income of $350 per month per unit, with a capitalization rate of 9.5%. What is the value of the property?

A. $205,263 B. $176,842 C. $303,158 D. none of the above

46. On an income producing property which has a net operating income of $99,999, Investor A wants a capitalization rate of 10%, and Investor B wants a capitalization rate of 11%. Which of the following statements is true?

A. Investor A would pay less than Investor B for the property

B. Investor B would pay more than Investor A for the property

C. Investor A would pay $90,908 more than Investor B

D. Investor B would pay $90,098 more than Investor A

47. In statistics a population is:

A. the number of people who live in a specific city

B. half of a sample

C. all of a sample

D. a complete data set

The following sale prices of 11 house sales is used to answer questions 48-51

$67,300

73,000

102,000

102,000

102,000

104,000

104,000

110,000

112,500

116,000

220,600

48. What is the mean of these 11 sales?

A. 110,309 B. 120,840 C. 109,855 D. 114,110

49. What is the median of these 11 sales?

A. 120,840 B. 109,855 C. 104,000 D. 102,000

50. What is the mode of these 11 sales?

A. 120,840 B. 109,855 C. 104,000 D. 102,000

51. What is the range of these 11 sales?

A. 153,300 B. 152,300 C. 122,300 D. 110,000

Observed Condition (Breakdown)

Physical and Functional Depreciation may be determined by the Observed Condition (Cost to Cure) method which estimates the dollar amount that would be required to repair those curable and incurable items of Physical and Functional Depreciation.

Example: The subject property consists of a two-year old, 1,750 square foot single-family residence with a Replacement Cost New of $35.00 per square foot.

Several items require immediate repair or maintenance consisting of:

• replacing broken interior door estimated to cost $100

• replacing broken garbage disposal estimated to cost $150

The short-lived items of construction have the following Replacement Cost New (RCN) and life expectancies:

• central heat and air, $4,000, 10 years

• carpet, $1,800, 5 years

• roof cover, $2,500, 15 years

The Effective Age appears to match its actual age and the total expected life of the property is approximately 50 years.

Solution:

Physical Curable (Immediate Repair)

Broken Interior Door …………………………………………………………………………………………$100

Broken Garbage Disposal …………………………………………………………………………………..$150

Total immediate Repair ……………………………………………………………………………………...$250

Physical Incurable (Short-Lived)

Central Heat and Air ($4,000 x (2 ÷ 10 Years)) …………………………………………………..……….$800

Carpet ($1,800 x (2 ÷ 5 Years)) ………………………………………………………………….…………$720

Roof Cover ($2,500 x (2 ÷ 15 Years)) ……………………………………………………………………...$333

Total Short-Lived ……………………………………………………………………………………..…….$1,853

Physical Incurable (Long-Lived)

Replacement Cost New (1,750 SF x $35/SF) …………………………………………………………$61,250

Less

RCN of Immediate Repair ………………………………………………………………………………….($250)

RCN of Short-Lived ($4,000 + $1,800 + $2,500) ………………………………………………………($8,300)

Long-Lived RCN …………………………………………………………………………………………..$52,700

Total Long-Lived ($52,700 x (2 ÷ 50 Years)) ……………………………………………………………$2,108

Recapitulation:

Total Immediate Repair …………………………………………………………………………………….$ 250

Total Short-Lived ……………………………………………………………………………………………$1,853

Total Long-Lived ($52,700 x (2 ÷ 50 Years)) …………………………………………………………….$2,108

Total Physical Depreciation ……………………………………………………………………………..$4,211

Statistics

Population – a complete data set or all the data in a certain group

Mean – commonly called the average, it’s obtained by dividing the sum of all the variates in the population by the number of variates

Median – the median divides the variates of a population into equal halves

Mode – the mode is the most frequently appearing variate or attribute in a population

Range – the difference between the highest and lowest variate

Variate – the numerical value of a quantitative observation

Income Formulas

Gross Rent Multiplier = Sales Price ÷ Gross Monthly Rent

Gross Income Multiplier = Sales Price ÷ Gross Annual Income

Value = Net Income ÷ Capitalization Rate

APPRAISAL MATH

ANSWERS

1. B

¼ x ¼ x ¼ = 1/64 Section 640 ÷ 64 = 10 acres

2. D

$56,500 x .30 = $16,950

$59,700 x .65 = $38,805

$52,500 x .05 = $2,625

$16,950 + $38,805 + $2,625 = $58,380

3. A

50 x 1,000 ÷ 20,000 = 2.5

4. B

(100’ x 150’) + (50’ x 100’ ÷ 2) x ($2.50) = $43,750

5. C

86,000 ÷ .96 = $89,583.33

6. B

.009903 ÷ .011278 = .87808

.87808 x $90,000 + 10,000 = $89, 029

7. B

30,000 x (.15 - .10 + .12 = .17) = 5,100

5,100 + 30,000 = 35,100

8. B Comparables I & II

$80,750 - $75,000 = $5,750

1,750 sq. ft. - 1,500 sq. ft. = 250 sq. ft.

$5,750 ÷ 250 sq. ft. = $23.00

9. A Comparables I & III

$77,500 - $75,000 = $2,500 – covered porch

10. A Comparable III

$77,500 - (50 sq. ft. x $23) = $76,350

11. B

1,900 sq. ft. - 1,750 sq. ft. = 150 sq. ft.

150 sq. ft. x $15 = $2,250 (-)

12. B

6,500 sq. ft. - 6,000 sq. ft. = 500 sq. ft.

500 sq. ft. x $5 = $2,500 (-)

13. D

$74,000 - $2,250 - $2,500 = $69,250

14. C

6,000 - 5,500 = 500 x $4 = $2,000

1,500 - 1,350 = $150 x $15 = $2,250

$2,000 + $2,250 + $75,000 = $79,250

15. C

$70,000 x 4% ÷ 2 = $1,400 (+)

16. D

$4,400 + $2,400 - $5,200 = $1,600 (+)

17. A

11% + 6% - 13% = 4% (+)

18. A

$40,000 + $1,600 = $41,600

19. C

(9.5 + 10 + 9 + 10) ÷ 4 = 9.625 GRM

20. C

$25,000 x 9.625 GRM = $240,625

21. D

$28,000 x 9.25 = $259,000

22. B

1,750 sq. ft. x $37 = $64,750

$64,750 + $35,000 = $99,750

$99,750 - $92,000 = $7,750

$7,750 ÷ $64,750 = .11969 or 11.97%

23. B

50 - 25 = 25 ÷ 75 = .3333 or 33.33%

24. B

Pool : $5,000 x (3 ÷ 12) = $1,250

A/C: 5,000 x (3 ÷ 12) = $1,250

Carpet: 3,333 x (3 ÷ 9) = $1,111

Total $3,611

25. D

Replacement cost new:

2,100 sq. ft. x 35 sq. ft. (house) = $73,500

$5,000 + $5,000 + $3,333 (items) = $13,333 - $13,333

Rep. cost new long-lived:

$73,500 - $13,333 = $60,167

Total long-lived incurable:

$60,167 x (3 ÷ 50) = $3,610.02

26. A

$125 + $200 + $300 = $625

27. D

Total short-lived depreciation $3,611

Total long-lived depreciation $3,610

Total repairs $ 625

Total physical depreciation $7,846

28. A

100% - 8% = 92%

92% x 9% = 8.28%

92% - 8.28% = 83.72%

83.72% x 10% = 8.372%

83.72% - 8.372% = 75.348%

100% - 75.348% = 24.652%

29. C

35.25’ x 50.75’ = 1,788.9375

1,788.9375 x $35 = $62,612.812 or $62,613

100% - 6% = 94%

94% x 6% = 5.64%

94% - 5.64% = 88.36%

$62,613 x 88.36% = $55,324.646 or $55,325

$55,325 + (60’ x 120’ x $3) = $76,925

30. C

3.2% x 4 years = 12.8%

$89,000 - 12.8% = $77,608

$77,608 + $36,000 = $113,608

31. C

1,500 sq. ft. x $28 = $42,000

50’ x 120’ x $5 = $30,000

$42,000 + $30,000 = $72,000

$72,000 - $70,000 = $2,000

$2,000 ÷ $42,000 = .0476190 or 4.76%

32. C

25 years ÷ (50 years + 25 years) = 33.33%

33. C

A/C compressor $4,000 x (2 ÷ 10) = $ 800

Roof $4,200 x (2 ÷ 10) = $ 840

Carpet $1,000 x (2 ÷ 10) = $ 200

$1,840

34. D

Replacement cost new:

1,850 sq. ft. x $35 = $64,750

$4,000 + $4,200 + $1,000 = $9,200

$64,750 - $9,200 = $55,550

Replacement cost new long-lived:

$55,550 x 2 ÷ 50 years = $2,222

35. B

$150 + $350 + $400 = $900

36. D

$1,840 + $2,222 + $900 = $4,962

37. C

$85,000 - 10% = $76,500 + $30,000 = $106,500

38. B

40.5’ x 51.75’ x $40 x .94 = $78,804.90

60’ x 120’ x $4 = $28,800

$78,804.90 + $28,800 = $107,604.90

39. B

75’ + 75’ + 100’ + 100’ = 350’ x $35.50 = $12,425

40. C

$520 ÷ $245.50 x $250,000 = $529,531.57

41. D

$36,000 - ($1,000 x 3 mos.) - ($1,000 x 3 mos.)

= $30,000 EGI

42. C

$33.50 x 100’ = $3,350 ÷ 10.25% = $32,682.926

43. D

.10 x 55% = .055

.14 x 20% = .028

.25 x 25% = .0625

.055 + .028 + .0625 = 14.55%

44. B

$100,000 - $15,000 (15%) - $5,000 (5%) = $80,000 $80,000 - $17,600 (22%) = $62,400

$62,400 ÷ $520,000 = 12%

45. B

$350 x 12 x 4 = $16,800 ÷ .095 = $176,842

46. C

Investor A ($99,999 ÷ 10%) = $999,990

Investor B ($99,999 ÷ 11%) = - $909,082

$ 90,908

47. D

a population is a complete data set

48. A

(67,300 + 73,000 + 102,000 + 102,000 + 102,000 + 104,000 + 104,000 + 110,000 + 112,500 + 116,000 +220,600) ÷ 11 = $110,309

49. C

104,000 is the exact middle of the sample

50. D

the most common variate is 102,000

51. A

$220,600 – 67,300 = $153,300

Appraiser Law [pic] As amended and reenacted by Acts 2003, No. 341, §1

   R.S. 37:3391 - 3413

§3391. Short title

This Chapter shall be known and may be cited as the "Louisiana Real Estate Appraisers Law"

Acts 1987, No. 472, §1; Acts 1995, No. 690, §2.

§3392. Definitions

As used in this Chapter, the following words have the meaning ascribed to them in this Section unless the context clearly indicates otherwise:

(1) "Appraisal" or "real estate appraisal" means an analysis, opinion, or conclusion relating to the nature, quality, value, or utility of specified interests in, or aspects of, identified real estate, for or in expectation of compensation.

(2) "Appraisal assignment" means an engagement for which an appraiser is employed or retained to act, or would be perceived by third parties or the public as acting, as a disinterested third party in rendering an unbiased analysis, opinion, or conclusion relating to the nature, quality, value, or utility of specified interests in, or aspects of, identified real estate. Compensation for appraisal assignments may not include any contingency fee based on the results of the appraisal assignment.

(3) "Appraisal report" means any communication, written or oral, of an analysis, opinion, or conclusion relating to the nature, quality, value, or utility of specified interests in, or aspects of, identified real estate.

(4) "Commission" means the Louisiana Real Estate Commission.

(5) "General certificate" or "general certification" means a certificate or certification issued pursuant to the provisions of this Chapter for appraisals of all types of real estate.

(6) "Real estate" means an identified parcel or tract of land, including improvements, if any.

(7) "Real property" means one or more defined interests in a parcel of real estate, whether an unencumbered fee or a lesser estate.

(8) "State-certified real estate appraiser" means a person who holds a current, valid certificate issued to him for either residential or general real estate appraisal under the provisions of this Chapter.

(9) "Board" means the Louisiana Real Estate Appraisers Board established pursuant to the provisions of this Chapter.

(10) "Residential certificate" or "residential certification" means a certificate or certification issued pursuant to the provisions of this Chapter for appraisals of single-family residential properties, one to four unit residential properties, or vacant sites for single-family or farm/timber acreage which include the valuation of a single-family house, and nonresidential property with a property value of two hundred fifty thousand dollars or less, assuming competency.

(11) "Broker price opinion/comparative market analysis" means an analysis of recent sales of similar properties by a real estate salesperson or broker to derive an indication of the probable sales price of a particular property for the salesperson's or broker's principal.

(12) "General certified real estate appraiser" means a person who holds a current, valid license issued to him by the board for appraisal of all types of real estate regardless of complexity or transaction value.

(13) "Licensee" means any person who has been issued a license by the board to participate in any appraisal activity described in this Chapter.

(14) "Real estate appraiser trainee" means any person who has been issued a license by the board to appraise properties under the supervision of a licensed general real estate appraiser or residential real estate appraiser.

(15) "Residential certified real estate appraiser" means any person who holds a current, valid license issued by the board to appraise one to four residential units, without regard to transaction value or complexity, and perform appraisals of other types of real estate having a transaction value of two hundred fifty thousand dollars or less.  This includes the appraisal of vacant or unimproved land that is utilized for one to four family residential units.

Acts 1987, No. 472; §1; Acts 1990, No. 740, §1;  Acts 1991, No. 412,§ 1; Acts 1995, No. 690, §2; Acts 2001, No. 833, §2; Acts 2001, No. 888, §1; Acts 2003, No. 341, '1.

§3393. License Required

A. No person, other than a state licensed real estate appraiser, shall assume or use that title or any title, designation, or abbreviation that may create the impression of being licensed as a real estate appraiser by this state.

B. No licensed real estate appraiser shall assume or use any title, designation, or abbreviation that may create the impression of being licensed in a class other than that for which his license has been issued.

C. It shall be unlawful for any individual, for a fee or other valuable consideration, or with the intention or expectation of receiving or collecting a fee or valuable consideration from another, to do any of the following unless the individual is licensed under this Chapter:

(1) Be employed to perform or perform an appraisal as defined in this Chapter where the subject property of the assignment lies within the borders of the state of Louisiana.

(2) Present himself, or allow himself to be presented, as being able to perform an appraisal for which a license is required under this Chapter.

D. All real estate appraiser licenses issued under the provisions of this Chapter shall be issued in the individual name of the applicant and shall not be issued to a partnership, association, corporation, firm, or group.  Nothing shall preclude a licensed real property appraiser from performing appraisals for or on behalf of a partnership, association, corporation, firm, or group.

E. Nothing in this Chapter shall preclude a licensed real estate broker or salesperson from performing a broker price opinion/comparative market analysis in the ordinary course of the practice of real estate, provided that the broker or salesperson does not represent himself as being a state licensed real estate appraiser.

F. It shall be unlawful for any individual, for a fee or other valuable consideration, or with the intention or expectation of receiving or collecting a fee or valuable consideration from another, to perform contingent appraisals, or any form of estimated value, based on the fee or valuable consideration pending the estimated value.

G. It shall be unlawful for any individual, person, partnership, association, or corporation to perform any type of review or analysis of a real property appraisal, unless that person is licensed to perform real property appraisals.

H. The provisions of this Chapter shall not apply to the following:

(1) A person, partnership, association, or corporation that performs appraisals of property owned by that person, partnership, association, or corporation.

(2) A court-appointed individual who conducts an appraisal pursuant to a judicially ordered evaluation of the specific real property under litigation.

(3) A director, officer, or salaried employee of commercial banks, savings banks, credit unions, and savings and loan associations, when engaged in appraisal or evaluation activities for an on behalf of such financial institutions, unless there is a fee charged for the appraisal or evaluation, provided that a federal statute, rule, or regulation does not require such appraisal or evaluation activities to be performed by a state licensed real estate appraiser.

(4) State, parish, or municipal public officers or their salaried employees while performing their duties as such, except when the intended use of the appraisal is for acquisition of real property.

(5) A person appointed by a sheriff to make an appraisal in accordance with R.S. 13:4364 or R.S. 13:4365.

(6) Employees of the Department of Transportation and Development provided, however, that the provisions of this Chapter shall apply to such employees after June 30, 2010.

Acts 1987, No. 472, §1; Acts 2003, No. 341, '1.

§3394. Louisiana Real Estate Appraisers Board

A. There is hereby created within the office of the governor the Louisiana Real Estate Appraisers Board, which shall be comprised as provided in Subsection B of this Section.

B.(1) Nine members shall be appointed by the governor with one member appointed from each congressional district and the remainder appointed at large. Of the nine members appointed by the governor:

(a) One shall be appointed from a list of three names submitted by the Louisiana Bankers Association each of whom shall have been involved in real estate lending for at least five years.

(b) One shall be appointed from a list of three names submitted by the Community Bankers of Louisiana, each of whom shall have been involved in real estate lending for at least five years.

(c) The remainder shall have been Louisiana residents engaged in the general practice of real estate appraising in the state of Louisiana for not less than five years immediately preceding their appointment.

(2) At least four of the nine shall be general appraisers and at least two of the nine shall be residential appraisers. All appraiser members shall be state certified.

C. Each appointment by the governor shall be submitted to the Senate for confirmation.

D. All members shall be appointed for three-year terms. All terms shall commence thirty days after the appointment, and all members shall serve until their successors have been appointed and qualified. Vacancies occurring in the membership of the board for any reason shall be filled by appointment by the governor for the unexpired term. Upon expiration of their terms, members of the board shall continue to hold office until the appointment and qualification of their successors. No person shall be appointed for more than two consecutive terms. The appointing authority may remove a member for cause.

E. The executive director of the commission shall serve as executive director of the board.

F. The board shall meet at least once each calendar quarter to conduct its business. The location in Louisiana of future meetings shall be decided by a vote of the members present at the current meeting. The executive director shall give written notice to each member of the time and place of each meeting of the board at least ten days before the scheduled date of the meeting.

G. The members of the board shall elect a chairperson, vice chairperson, and secretary.

H. Five members of the board shall constitute a quorum for all business.

I. Each member of the board shall be entitled to a per diem allowance of fifty dollars for each meeting of the board at which the member is present. Each member of the board shall be entitled to reimbursement of their actual expenses for travel, meals, and lodging.

Acts 1987, No. 472, §1; Acts 1991, No. 94, §1, eff. Jan. 13, 1992; Acts 1991, No. 412, §1; Acts 1993, No. 949, §1; Acts 1995, No. 690, §2; Acts 2001, No. 8, §12, eff. July 1, 2001; Acts 2001, No. 833, §2; Acts 2003, No. 341, '1..

§3395. Powers, duties

A. The board shall have the following autonomous powers and duties:

(1) To regulate the issuance of real estate appraiser and trainee licenses.

(2) To establish administrative procedures for processing applications and issuing licenses to real estate appraisers and trainees.

(3) To adopt any rules and regulations in accordance with the Administrative Procedure Act necessary for the enforcement of this Chapter.

(4) To require any satisfactory proof it may desire in reference to the honesty, truthfulness, reputation, knowledge, and experience of any applicant for a real estate appraiser license prior to the issuance of any license.

(5) To adopt standards for the development and communication of real estate appraisals and to adopt regulations explaining and interpreting the standards.

(6) To conduct disciplinary proceedings pursuant to the provisions of this Chapter, to suspend or revoke licenses, and to censure and fine licensees.

(7) To impose continuing education requirements on licensees.

(8) To adopt a seal by which it shall authenticate its proceedings.

(9) To perform such other functions and duties as may be necessary to carry out the provisions of this Chapter.

B. Notwithstanding any provisions contained in this Chapter to the contrary, the board may adopt such regulations as may be necessary to comply with the minimum requirements of the Appraisal Subcommittee of the Federal Financial Institutions Examination Council, its agent, or its successor.

C. The board shall have the authority to require any real estate appraiser licensee to maintain records, as specified in this Chapter, and to inspect and subpoena such records.

D. The board shall have the authority to subpoena any real estate appraiser licensee or witness for the purpose of holding any hearing or in furtherance of an investigation.  Failure of a licensee to comply with a subpoena duces tecum shall be punishable by the board in accordance with the provisions of R.S. 37:3409.

Acts 1987, No. 472,§ 1; Acts 1991, No. 412,§ 1; Acts 1991, No. 695,§ 1; Acts 1993, No. 949,§ §1, 2; Acts 1995, No. 690,§ 2; Acts 2003, No. 341,  '1.

 

§3396. Applications

A. Applications for examination, experience review, and renewal certification shall be made in writing to the board on forms provided by the board.

B. Appropriate fees, as set forth in R.S. 37:3407, must accompany all applications for examination, experience review, and renewal certification.

C. Each applicant shall sign a pledge to comply with the standards set forth in this Chapter and state that he or she understands the types of misconduct for which disciplinary proceedings may be initiated against a state certified real estate appraiser.

D.(1) Licenses shall be granted only to persons who have attained the age of eighteen years, who hold a high school diploma or its equivalent, and who bear a good reputation for honesty, trustworthiness, integrity, and competence to perform real estate appraisals and only after satisfactory proof of such qualifications has been presented to the board.

(2) When an applicant has been convicted of forgery, embezzlement, obtaining money under false pretense, larceny, extortion, conspiracy to defraud, or theft, or has been convicted of a felony or a crime of moral turpitude in any court of competent jurisdiction, such untrustworthiness of the applicant, or the conviction itself may be sufficient grounds for refusal to issue a license.

(3) When an applicant has made a false statement of material fact on his application, such false statement may in itself be sufficient grounds for refusal to issue a license.

E. Suspension or revocation or grounds for suspension or revocation of a real estate appraiser license, or its equivalent, or a real estate salesperson or broker license in any jurisdiction may be grounds for refusal to issue a real estate appraiser license.

F. (1) A real estate appraiser whose license has been revoked as a result of disciplinary action in any jurisdiction shall not be eligible to apply for a Louisiana real estate appraiser license for at least five years following the date on which the license, or its equivalent, was revoked.

(2) An applicant whose license, or its equivalent, has been revoked shall meet all requirements of an initial applicant and shall present evidence of completion of fifteen hours of continuing education for each renewal period, or portion thereof, following the date on which the license, or its equivalent, was revoked.

Acts 1987, No. 472, §1; Acts 1991, No. 412, § ; Acts 1993, No. 949, §1; Acts 1995, No. 690, §2; Acts 2001, No. 888,§ 1; Acts 2003, Acts 341, '1.

§3397. License classifications; criteria

A. (1) There shall be three classes of licenses for real estate appraisers. Such classes shall conform in all respects with the Financial Institutions Reform, Recovery and Enforcement Act of 1989, Pub.L. No 101-73, and any subsequent amendments and regulations issued pursuant thereto.

(2) The application for examination, experience review, and renewal certification shall specify the license classification for which the applicant is applying.

B. (1) In order to obtain his license from the board, a real estate appraiser trainee shall be subject to the following: 

(a) The Competency Provision of the Uniform Standards of Professional Appraisal Practice (USPAP).

(b) Training and direct supervision by an appraiser who is licensed in good standing as a residential real estate appraiser or a general real estate appraiser.  The trainee is permitted to have more than one supervising appraiser.  The scope of work for the real estate appraiser trainee is the appraisal of those properties that the supervising real estate appraiser  is licensed to appraise.

(c) Completion of seventy-five classroom hours of qualifying education, or its equivalent, in core education subjects that include thirty hours of basic appraisal principles, thirty hours of basic appraisal procedures, and the fifteen-hour National Uniform Standards of Professional Appraisal Practice course, or its equivalent, passage of a final examination in each course. These hours may be credited toward the educational requirement for all appraiser license classifications.  Qualifying education hours must be obtained within the five-year period immediately preceding application for the real estate appraiser trainee license. 

(2) There are no additional examination or experience requirements other than those listed in this Subsection for the real estate appraiser trainee license.

(3) The real estate appraiser trainee shall maintain a separate appraisal log for each supervising licensed appraiser that includes, at a minimum, the following information for each appraisal:

(a) Type of property.

(b) Client name and address.

(c) Address of appraised property.

(d) Description of work performed.

(e) Number of work hours.

(f) Name, signature and state license number of the supervising licensed appraiser.

(4) A real estate appraiser trainee may not be licensed in this category in excess of six years.  All trainees who have been licensed in excess of two years shall be required to obtain continuing education that is equivalent to fifteen classroom hours of instruction for each year.

(5) The real estate appraiser trainee shall be entitled to obtain copies of appraisal reports prepared by the trainee.  The supervising appraiser shall keep copies of the trainee appraisal reports for a period of at least five years or at least two years after final disposition of any judicial proceeding in which testimony is given, whichever period expires last.

C. (1) Applicants for a residential certified real estate appraiser license shall be subject to the following:

(a) The competency provision of the Uniform Standards of Professional Appraisal Practice (USPAP).

(b) Successful completion the Uniform State Certified Residential Real Property Appraiser Examination, or its equivalent.  There is no substitution for successful completion of the examination.  Successful completion of the Uniform State Certified General Real Property Appraiser Examination is not equivalent to successful completion of the Certified Residential Real Property Appraiser Examination and may not be substituted as such.

(c) As a prerequisite to taking the required examination, successful completion of one hundred twenty classroom hours, or its equivalent, in real estate appraisal related subjects that include the fifteen-hour National USPAP Course, or its equivalent, and successful passage of a final examination. These hours may be credited toward the educational requirement for all appraiser license classifications.  Qualifying education hours must be obtained within the five-year period immediately preceding application for the Certified Residential Real Property Appraiser license. 

(d) The presentation of evidence satisfactory to the board that the applicant has completed a minimum of two thousand five hundred hours of real property appraisal experience.

(2) The application for a license shall not be submitted until such time that the applicant has passed the Uniform State Certified Residential Real Property Appraiser Examination, or its equivalent.

(3)  Proof of experience hours claimed by an applicant shall be submitted on forms prescribed by the board.  Such hours cannot be obtained in less than twenty-four months, and  education hours cannot be substituted for experience.

(4) The equivalent of fifteen classroom hours of continuing education instruction is required for each year in which a residential real estate appraiser license is issued.

D.(1) All applicants for a general certified real estate appraiser license shall be subject to the following:

(a) The competency provision of the Uniform Standards of Professional Appraisal Practice (USPAP).

(b) Successful completion of the Uniform State Certified General Real Property Appraiser Examination, or its equivalent.  There is no alternative to successful completion of the examination.

(c) As a prerequisite to taking the required examination, successful completion of one hundred eighty classroom hours, or its equivalent, in real estate appraisal related subjects that include the fifteen-hour National USPAP Course, or its equivalent, and successful passage of a  final examination. Qualifying education hours shall be obtained within the five-year period immediately preceding application for the general real estate appraiser license. 

(d) Presentation of evidence satisfactory to the board that the applicant has completed a minimum of three thousand hours of real property appraisal experience.

(2) Proof of hours of experience claimed by the applicant shall not be submitted until such time that the applicant has passed the Uniform State Certified General Real Property Appraiser Examination, or its equivalent.

(3) Proof of hours of experience claimed by an applicant shall be submitted on forms prescribed by the board, and such hours cannot be obtained in less than thirty-six months.  Education hours cannot be substituted for experience.

(4) The equivalent of fifteen classroom hours of continuing education instruction is required for each year in which a general real estate appraiser license is issued.

Acts 1987, No. 472, §1; Acts 1993, No. 949, §1; Acts 1995, No. 690, §2, Acts 2003, No. 341, §1

§3398. Examination

A. A license as a real estate appraiser shall not be issued in any class other than real estate appraiser trainee, unless the applicant demonstrated through a written examination process that he or she possesses the following:

(1) Knowledge of technical terms commonly used in or related to real estate appraising, appraisal report writing, and economic concepts applicable to real estate appropriate to the type of license sought.

(2) Basic understanding of real estate law.

(3) Adequate knowledge of theories of depreciation, cost estimating, methods of capitalization, and the mathematics of real estate appraisal.

(4) Understanding of the principles of land economics, real estate appraisal processes, and of problems likely to be encountered in the gathering, interpreting, and processing of data in carrying out appraisal disciplines.

(5) Understanding of the standards for the development and communication of real estate appraisals as provided in this Chapter.

(6) Understanding of the types of misconduct for which disciplinary proceedings may be initiated against a state licensed real estate appraiser, as set forth in this Chapter.

B. Any applicant not licensed within two years after passing an examination given pursuant to the provisions of this Chapter shall be required to retake and pass the examination.

C. An applicant who has failed an examination may reapply for examination by submitting an application fee within ninety days of the last examination date.

D. All applicants for licensure shall have successfully completed all educational requirements, as provided in this Chapter, have earned a high school diploma, or its equivalent, and have successfully completed an examination given pursuant to this Section prior to submitting evidence to the board of having completed the number of hours of experience required for licensure.

E. However, any person who has successfully passed the examination prior to December 31, 1997, may be certified upon the completion of the education and experience requirements of this Chapter, as from time to time amended, if done within three years of passing the examination, without the necessity of again taking the examination.

Acts 1987, No. 472, §1; Acts 1993, No. 949, §1; Acts 1997, No. 1363, §1, eff. July 15, 1997; Acts 1999, No. 158, §1; Acts 2001, No. 888, §1; Acts 2003, No. 341, §1.

§3399. Education and experience requirements

A. (1) As prerequisites to receiving a residential certification, an applicant shall present evidence satisfactory to the board that he has two years and two thousand five hundred hours of experience in real property appraisal, has submitted an experience review application, and has successfully completed not less than one hundred twenty classroom hours of courses in subjects related to real estate appraisal, which shall include coverage of the Uniform Standards of Professional Appraisal Practice.

(2) As part of the one-hundred-twenty-hour requirement, the applicant shall successfully complete a minimum of fifteen classroom hours of instruction covering the Uniform Standards of Professional Appraisal Practice. Credit toward the classroom hour requirement shall be granted only where the length of the educational offering is at least fifteen hours, and the individual has successfully completed an examination pertinent to that educational offering. The board shall have the authority to otherwise provide with respect to educational and experience requirements for residential certification as mandated by the Appraiser Qualifications Board of the Appraisal Foundation.

B. (1) As prerequisites to receiving a general certification, an applicant shall present evidence satisfactory to the board that he has three years and three thousand hours of experience in real property appraisal, has submitted an experience review application, and has successfully completed not less than one hundred eighty classroom hours of courses in subjects related to real estate appraisal, which shall include coverage of the Uniform Standards of Professional Appraisal Practice.

(2) As part of the one-hundred-eighty-hour requirement, the applicant shall successfully complete a minimum of fifteen classroom hours of instruction covering the Uniform Standards of Professional Appraisal Practice. Credit toward the classroom hour requirement shall be granted only where the length of the educational offering is at least fifteen hours and the individual has successfully completed an examination pertinent to that educational offering. The board shall have the authority to otherwise provide with respect to educational and experience requirements for general certification as mandated by the Appraiser Qualifications Board of the Appraisal Foundation.

Acts 1987, No. 472,§ 1; Acts 1991, No. 412,§ 1; Acts 1993, No. 949,§ 1; Acts 1995, No. 690,§ 2; Acts 1997, No. 1363,§ 1, eff. July 15, 1997.

§3400. Term of licenses

All licenses issued under this Chapter shall be issued for two years and shall expire on the second December 31 following the date on which it was issued.

Acts 1987, No. 472, §1; Acts 2003, No. 341, §1

§3401. Nonresident license; temporary registration; reciprocity

A. Every nonresident applicant for a license issued under this Chapter shall submit an irrevocable consent that service of process in any action against the applicant arising out of the applicant's activities as a state certified real estate appraiser may be made by delivery of the process to the secretary of state, if the plaintiff cannot, in the exercise of due diligence, effect personal service upon the applicant.

B. A nonresident applicant who has complied with the provisions of Subsection A of this Section may apply for a license as a real estate appraiser in this state by conforming to all of the provisions of this Chapter relating to real estate appraisers.

C. A nonresident real estate appraiser certified or licensed in another jurisdiction may make appraisals on a temporary basis only if each of the following conditions are met:

(1) The property to be appraised is part of a federally related transaction.

(2) The Appraisal Subcommittee of the Federal Financial Institutions Examination Council or its successor, has approved the state, commonwealth, or territory program under which the nonresident appraiser is licensed or certified.

(3) The nonresident appraiser has registered with the board and has provided the board with each of the following:

(a) A license or certification history from the jurisdiction in which he is currently certified or licensed verifying that his certification or license is valid and in good standing.

(b) Substantiation of the federal nature of the transaction.

(c) Payment of the temporary registration fee specified in R.S. 37:3407(A)(7).

(d) Written recognition of the fact that this registration is of a temporary nature.

D.  If the board determines that another jurisdiction has substantially equivalent certification or license requirements to those of this state, the board may enter into a reciprocal agreement with the appropriate authority to allow any resident applicant who is certified under the laws of that jurisdiction to obtain a reciprocal license as a real estate appraiser in this state.  The terms and conditions shall be designated by written agreement between the jurisdictions.

Acts 1987, No. 472,§ 1; Acts 1991, No. 412,§ 1; Acts 1993, No. 949,§ 1; Acts 1995, No. 690,§ 2; Acts 2003, No. 341, §1

§3402. Nonresident certification by reciprocity

If the board determines that another state has substantially equivalent certification requirements to those of this state, an applicant who is certified under the laws of that state may obtain certification as a state-certified real estate appraiser in this state under terms and conditions determined by the board. Such terms and conditions shall conform to the minimum criteria for certification issued by the Appraiser Qualifications Board of the Appraisal Foundation.

Acts 1987, No. 472, §1; Acts 1995, No. 690, §2.

§3403. Renewal of certification license

A. (1) Each license issued under this Chapter shall be issued for a period of two years and shall expire on the second December thirty-first following the date on which it is issued. A license which is not renewed by January first shall be considered to be expired, and any appraisal practice that is conducted in this state after expiration of the license shall be deemed a violation of this Chapter.

(2) Any licensee who submits a renewal application which is received by the board after the expiration date shall pay the delinquent fee provided for in R.S. 37:3407(A).

B. Any licensee who fails to renew timely may thereafter renew during the six-month period immediately following the last date on which the applicant licensee held a valid license. Former licensees who are not eligible for renewal because of delay beyond the six-month delinquent renewal period shall apply as initial applicants.

Acts 1987, No. 472,§ 1; Acts 1993, No. 949,§ 1; Acts 1995, No. 690,§ 2.

§3404. Corporation, partnership not eligible for certification

No certificate shall be issued under the provisions of this Chapter to a corporation, limited liability company, partnership, firm, or group. However, nothing herein shall preclude a state-certified real estate appraiser from rendering appraisals for or on behalf of a corporation, limited liability company, partnership, or group, provided that the appraisal report is prepared by, or under the immediate direction of, the state-certified real estate appraiser and is signed by such state-certified real estate appraiser.

Acts 1987, No. 472,§ 1; Acts 1995, No. 690,§ 2.

§3405. Principal place of business for appraiser

A. Each licensed real estate appraiser shall advise the board of the address of his or her principal place of business and all other addresses at which he is currently engaged in the business of preparing real property appraisal reports.

B. Each licensed appraiser shall report any changes in the address or telephone number of his business or residence to the board in writing within ten days of the change.

Acts 1987, No. 472,§ 1; Acts 1993, No. 949,§ 1; Acts 1995, No. 690,§ 2; Acts 2003, No. 341, §1

§3406. Issuance of license; display; use of term

A. A license issued under authority of this Chapter shall bear the signatures or facsimile signatures of the chairperson and secretary of the board and a license number assigned by the board.

B. Each licensed real estate appraiser shall include his certification and license number in all appraisal reports, contracts, or other instruments used by the licensee in conducting real property appraisal activities.

C. The term "Louisiana State Certified Residential/General Real Estate Appraiser" shall only be used to refer to individuals who hold the certificate and shall not be used following or immediately in connection with the name or signature of a firm, partnership, corporation, limited liability company, or group or in such manner that it might be interpreted as referring to a firm, partnership, corporation, limited liability company, group, or anyone other than an individual holder of the certificate.

D. Licensed real estate appraisers wishing to use their license for advertising purposes, including but not limited to logos, stationery, business cards, and the like, shall place their license number adjacent to or immediately below their license classification, which shall be specifically denoted as one of the following:

(1) Louisiana certified residential real estate appraiser.

(2) Louisiana certified general real estate appraiser.

(3) Louisiana real estate appraiser trainee.

Acts 1987, No. 472, §1; Acts 1991, No. 412, §1; Acts 1995, No. 690, §2; Acts 2001, No. 833, §2; Acts 2003, No. 341, §1.

§3407. Fees

A. The board shall charge and collect fees not in excess of the following:

(1) License application fee $200.00

(2) License history fee $25.00

(3) Examination processing fee $100.00

(4) Experience review $100.00

(5) License renewal fee $200.00

(6) Delinquent renewal fee:

January 1 - February 15 $25.00

February 16 - June 30 $100.00

(7) Temporary registration fee $50.00

(8) Initial qualifying/continuing education provider fee $100.00

(9) Annual renewal fee for education provider $100.00

(10) Filing fee for additional course offerings submitted by approved education providers $10.00

B. (1) In addition to the fees provided for in Subsection A of this Section, the board may charge each applicant or licensee twenty dollars for each two-year period. The funds shall be included in the research and education fund of the Louisiana Real Estate Commission and shall be dedicated for use by the board to sponsor, conduct, contract for, and underwrite any and all research projects or real estate appraisal programs having to do with the advancement of the real estate appraisal industry in Louisiana.

(2) Additionally, the board may collect any required federal fees from each applicant or licensee and remit them to the appropriate agency or instrumentality of the federal government as may be required to render Louisiana licensed real estate appraisers eligible to perform appraisals in connection with federally related transactions.

C. All fees shall be paid into the operating account of the board for the purpose of carrying out the provisions of this Chapter.

D. Activities of the board shall be audited in accordance with R.S. 24:513.

Acts 1987, No. 472, §1; Acts 1991, No. 412, §1; Acts 1993, No. 949, §1; Acts 1995, No. 690, §2; Acts 2003, No. 341, §1.

§3408. Continuing education requirements

A. As a prerequisite to renewal of a real estate appraiser license, all licensees shall present evidence satisfactory to the board of having met the continuing education requirements set forth in this Chapter.

B. The basic continuing education requirements for renewal of a license shall be the completion of not less than thirty classroom hours, or its equivalent, in courses which have received the approval of the board. As part of this requirement, the applicant shall complete a minimum of seven classroom hours of instruction covering the Uniform Standards of Professional Appraisal Practice every renewal period.

C. In lieu of meeting the requirements of Subsection B of this Section, an applicant for renewal may present evidence of the following:

(1) Completion of courses determined by the board to be equivalent to continuing courses approved by the board pursuant to Subsection B of this Section.

(2) Participation, other than as a student, in educational processes and programs in real property appraisal theory, practices, or techniques, including but not limited to teaching, program development, and preparation of textbooks, monographs, articles, and other instructional materials, all to be approved by the board.

D. The board shall adopt regulations for implementation of the provisions of this Section to provide licensees with current knowledge of real property appraisal theories, practices, and techniques. Such regulations shall prescribe the following:

(1) Policies and procedures for obtaining board approval of courses pursuant to Subsection B of this Section.

(2) Standards, policies, and procedures to be applied by the board in evaluating course of equivalency in Subsection C of this Section.

(3) Standards, monitoring methods, and systems for recording attendance to be employed by course sponsors as a prerequisite to board approval of courses for credit.

E. In making recommendations pursuant to Paragraph D (1) of this Section, the board shall give favorable consideration to courses of instruction, seminars, and other real property appraisal education courses or programs previously or hereafter developed by or under the auspices of professional appraisal organizations and utilized by those associations for purposes of designation, certification, or re-certification of the members of the association.

F. No amendment or repeal of a regulation adopted by the board pursuant to this Section shall operate to deprive a licensed real estate appraiser of credit toward renewal of certification for any course of instruction completed by the applicant prior to the amendment or repeal of the regulation, if the course would have qualified for continuing education credit under the regulation as it existed prior to the repeal or amendment.

Acts 1987, No. 472, §1; Acts 1993, No. 949, §1; Acts 1995, No. 690, §2; Acts 2001, No. 888, §1; Acts 2003, No. 341, §1.

§3409. Disciplinary proceedings

A. The board may censure a licensed real estate appraiser, conditionally or unconditionally suspend or revoke any license issued under this Chapter, levy fines or impose civil penalties not to exceed five thousand dollars, or impose continuing education requirements on licensees if, in the opinion of the board, a licensee is performing, is attempting to perform, has performed, or has attempted to perform any of the following acts:

(1) Committing any act in violation of this Chapter.

(2) Violating any rule or regulation adopted by the board in the interest of the public and consistent with the provisions of this Chapter.

(3) Knowingly making any false representation to any party in developing or communicating an appraisal.

(4) Accepting an appraisal assignment when the employment itself is contingent upon the appraiser reporting a predetermined analysis or opinion or where the fee to be paid for the performance of this appraisal assignment is contingent upon the opinion, conclusion, or valuation reached or upon the consequences resulting from the appraisal assignment.

(5) Violating the confidential nature of governmental records to which he gained access through employment or engagement as an appraiser by a governmental agency.

(6) Procuring a license for himself or anyone else by fraud, misrepresentation, or deceit.

(7) Having been convicted of a felony or having entered a plea of nolo contendere to a felony charge.

(8) Failing to make available to the Board for its inspection, without prior notice, originals or true copies of all written contracts engaging the person’s services to appraise real property and all reports and supporting data assembled and formulated by the appraiser in preparing the reports.

(9) Paying a fee or valuable consideration to any person for acts or services performed in violation of this Chapter.

(10) Acting as a real property appraiser in an unworthy or incompetent manner as to endanger the interest of the public.

B. (1) Sole authority for the conduct of adjudicatory proceedings in accordance with the Administrative Procedure Act for violations of this Chapter is vested in the board.

(2) Before censuring any licensee, or suspending or revoking any licensee, the board shall notify the licensee in writing of any charges made at least twenty days prior to the date set for the hearing and shall afford him an opportunity to be heard in person or by counsel.

(3) The written notice shall be satisfied by personal service on the respondent, or by sending the notice by certified mail to the last licensee's address on file with the board, or by hand delivery from board personnel.

(4) The board shall have the power to subpoena and issue subpoenas duces tecum and to bring before it any person in this state to take testimony by deposition, in the same manner as prescribed by law in judicial proceedings in the courts of this state, or to require production of any records relevant to any inquiry or hearing by the board.

C. (1) The hearing on the charges shall be at a time and place prescribed by the board and in accordance with the Administrative Procedure Act.

(2) The board may make findings of fact and shall deliver or mail such findings to the licensee charged with an offense under this Chapter. Any finding of fact by the board pursuant to this Subsection shall be conclusive.

(3) Any final decision or determination of the board in adjudicatory proceedings shall be reviewable as to questions of law by the Nineteenth Judicial District Court in the parish of East Baton Rouge. Any application for judicial review made by an aggrieved party shall be filed within thirty days after the final decision of the board.

(4) If a petition to review the final decision of the board is filed, the case shall be specifically fixed for trial within thirty days from the filing of an answer by the board. If the court finds that the board has properly pursued its authority in accordance with the law, is supported by evidence in the record, and has not acted arbitrarily, it shall affirm the decision, order, or ruling.

(5) If an appeal is filed, in the Nineteenth Judicial District Court, the court shall receive the entire record of the hearing.

(6) Absent an agreement of counsel for all parties, no stay of enforcement of a decision issued by the board, shall be granted during the pendency of an appeal unless the Nineteenth Judicial District Court finds that the applicant has established that the issuance of the stay does not threaten harm to other interested parties.

(7) No stay shall be granted ex parte.  The court shall schedule a hearing on the request for a stay order within ten days from filing.  The decisions shall be rendered within five days after the conclusion of the hearing.

(8) No judicial order staying or enjoining the effectiveness or enforcement of a final decision or order of the board in an adjudication proceeding, whether issued pursuant to R.S. 37:3409 or otherwise, shall be effective, or be issued to be effective, longer than:

(a)  One hundred twenty days from the date on which the board’s decision or order was rendered; or,

(b)  The date on which the court enters judgment in a proceeding for judicial review of the board’s decision or order pursuant to R.S. 49:964, whichever occurs first.

D. The board may also suspend or revoke the license of a real estate appraiser based upon a final civil judgment against the appraiser on grounds of fraud, misrepresentation, or deceit in the making of an appraisal of real property. In a disciplinary proceeding based upon such judgment, the licensed real estate appraiser shall be afforded notice and the opportunity to present matters in mitigation and extenuation but shall not collaterally attack the civil judgment.

E. It shall be the duty of each licensed real estate appraiser to notify the board within ten days by registered or certified mail or by hand delivery of the following actions:

(1) The rendering of a final judgment against the appraiser by a court of competent jurisdiction the subject matter of which involves a real estate appraisal transaction to which the appraiser was a party.

(2) The institution of criminal prosecution by arrest or indictment which involves a real estate appraisal transaction to which the appraiser was a party.

(3) Any conviction of the appraiser by a court of competent jurisdiction for forgery, embezzlement, obtaining money under false pretenses, larceny, extortion, conspiracy to defraud, theft, any other felony, or any crime involving moral turpitude.

F. A licensed real estate appraiser shall not participate in the preparation of federally related real estate appraisals during any period in which his license has been suspended by the board pursuant to adjudicatory proceedings.

Acts 1987, No. 472, §1; Acts 1991, No. 412, §1; Acts 1993, No. 949, § ; Acts 1995, No. 690, § ; Acts 1999, No. 158, §1; Acts 2003, No. 341, §1; Acts 2003, No. 341, §1.

§3410. Standards for the development and communication of real estate appraisals

A licensed real estate appraiser shall comply with generally accepted standards of professional practice in the development and communication of appraisals of real estate located in this state and with generally accepted ethical rules of conduct as contained in the "Uniform Standards of Professional Appraisal Practice", or its successor, as approved by the Appraisal Subcommittee of the Federal Financial Institutions Examination Council, or its successor.

Acts 1987, No. 472, §1; Acts 1990, No. 740, §1; Acts 1991, No. 412, §1; Acts 2003, No. 341, §1.

§3411. Documents to be retained

A licensed real estate appraiser shall retain for five years originals or true copies of contracts engaging the appraiser's services for real property appraisal work, appraisal reports, and supporting data assembled and formulated by the appraiser in preparing reports. The period for retention of the records applicable to each engagement of the services of the appraiser shall run from the date of the submission of the appraisal report to the client. These records shall be made available by the appraiser for inspection and copying by the board on reasonable notice to the appraiser. When litigation is contemplated at any time, reports and records shall be retained for two years after the trial date.

Acts 1987, No. 472, §1; Acts 1995, No. 690, §2; Acts 2003, No. 341, §1.

§3412. False information

It shall be unlawful for any person or his agent to file with the board any notice, statement, or other document required under the provisions of this Chapter which is false or contains any material misstatement of fact.

Acts 1987, No. 472, §1; Acts 1995, No. 690, §2.

§3413. Penalty

Any person who violates any provision of this Chapter shall be fined not more than five thousand dollars, imprisoned for not more than six months, or both.

Acts 1995, No. 690, §2; Acts 2003, No. 341, §1.

RULE

Department of Economic Development

Real Estate Appraisers Board of Certification

Real Estate Appraisers

(LAC 46:LXVII.10101, 10301-10317,

10401-10425, 10501-10507)

Under the authority of the Louisiana Real Estate

Appraisers Certification Law, R.S. 37:3395, and in

accordance with the provisions of the Louisiana

Administrative Procedure Act, R.S. 49:950 et seq., the

Louisiana Real Estate Appraisers State Board of

Certification has repealed LAC 46:LXVII.Real

Estate.Subpart 2.Appraisers, Chapter 101, Authority;

Chapter 103, Certification; and Chapter 105, Investigations and Adjudicatory Proceedings, in its entirety, and promulgated rules and regulations which will administer the state real estate appraiser certification program in accordance with current federal guidelines.

Title 46

PROFESSIONAL AND OCCUPATIONAL

STANDARDS

Part LXVII. Real Estate

Subpart 2. Appraisers

Chapter 101. Authority

§10101. Adoption

A. The rules and regulations of the Louisiana Real Estate Appraisers State Board of Certification contained herein have been adopted pursuant to and in compliance with R.S. 37:3391 et seq. and any violation of these rules or regulations shall be sufficient cause for any disciplinary action permitted by law.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

Chapter 103. Certification

§10301. Applications

A. Applications for examination must be submitted on

forms prescribed by the board and must be notarized and

accompanied by the prescribed fees specified in R.S.

37:3407.

B. An examination authorization will be issued by the

board on receipt of a properly completed application.

C. When an applicant has made a false statement of

material fact on an application for certification, or in any

document submitted in connection with the application

process, such false statement may in itself be grounds for

refusal of a certificate.

D. A person who has applied for certification and has

been denied by the board for having made a false statement of material fact on an application for certification, or for having submitted an appraisal report for experience credit which has been altered in any way or which contains false information, shall not be considered by the board for certification for a period of two years from the date the application was denied.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10303. Examination

A. Any applicant who fails to pass his initial examination may reapply to take a subsequent examination, provided he remits a new examination processing fee within 90 days of his last test date and obtains a new examination authorization. After 90 days the board’s files shall be cleared and remittance of all prescribed fees and a new application shall be required. The board, at its discretion, may extend the 90 day retake period upon showing that factors beyond the control of the applicant warrants such an extension.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10305. Fees

A. Except as otherwise provided in the rules and

regulations, all fees submitted to the board are nonrefundable.

B. The application fee for certification shall cover a

period of two calendar years and shall not be prorated.

C. The initial education provider fee shall cover a period of one calendar year and shall not be prorated.

D. Payment of any fee with a check which is returned by a financial institution wherein the reason for not paying the check is not the fault of the financial institution shall be grounds for the cancellation of the transaction for which the fee was submitted and/or the suspension or revocation of a certified appraisers certificate or a certification as a continuing education provider.

E. Persons issuing checks which are returned by

financial institutions will be notified of the return of the

check by certified mail to the address registered by that

person with the board. Within ten days from the mailing of the notification, the person issuing the check will remit a certified check, cashier’s check or money order payable to the Louisiana Real Estate Appraisers State Board of

Certification in the amount of the returned check.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10307. Basic Education Requirement for Certification

A. The board shall prescribe and define the subjects

related to real property appraisal that will satisfy the

educational requirements for qualifying and continuing

education, including:

1. specific appraisal subjects to be mandatory

requirements for residential and general appraiser

certification, including the minimum number of hours that

must be completed in each subject; and

2. appraisal subjects to be designated as electives,

including the maximum number of hours of elective study

acceptable toward residential and general appraiser

certification.

B. Any applicant completing appraisal courses through

education providers not certified by the board must apply for and receive approval for such course work being used for certification or renewal. The applicant must provide proof of:

1. course completion;

2. number of classroom hours;

3. examination requirement;

4. detailed course content;

5. any additional information on the subject matter

deemed necessary by the board for the rendering of an informed decision on the request.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10309. Experience Credit/Review Procedure

A. The chairman and members of the Experience Review Committee shall be appointed by the chairman of the Louisiana Real Estate Appraisers State Board of

Certification.

B. In accordance with R.S. 1950, Title 50, Chapter 51,

Louisiana Real Estate Appraisers Certification Law, it is the responsibility of the board to verify that applicants for

residential and general certification have met the experience requirement prior to issuance of an examination authorization. The committee shall have the authority to request and review copies of any appraisal reports listed in the application for experience credit.

C. Applicants shall list their appraisal experience on the

application provided by the board. Computer generated

forms will be accepted, provided that all necessary data is

submitted in a format similar to that published by the board.

D. The board shall consider for experience credit toward appraiser certification only those real property appraisals which include, but are not limited to, the appraisal of real property consistent with the Uniform Standards of Professional Appraisal Practice.

E. Applications for experience credit shall only be

accepted from individuals who have satisfied the education requirement for the type of certification for which they have applied.

F. The board may require an applicant to obtain

additional educational training consisting of not less than 15 or more than 30 classroom hours of course work.

G. Appraisals performed by an applicant for an owner or instructor of a school certified by the Louisiana Real Estate Commission within one year from the date the applicant completed prequalifying education course work at the school shall not be used to satisfy any requirement for experience credit for certification as a residential or general real estate appraiser.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10311. Residential Certification Minimum Experience

A. A minimum of 250 credit points is required for

residential certification. Regardless of the number of

experience points earned in any given year, the maximum

allowable credit that can be applied toward the experience

requirement is 125 points. There is no minimum point

requirement. For example:

|1997 |140 points |= |1.00 |experience year |

|1996 |120 points |= |0.96 |experience year |

|1995 |100 points |= |0.80 |experience year |

| |360 points |= |2.76 |experience years |

1. When an appraisal report is signed by more than

one person, credit for said assignment must be divided

equally among all signatories. For the purpose of granting

credit, a person signing in the capacity of a Review or

Supervisory Appraiser is not considered as a co-signer on

the report, provided that his role as such is clearly indicated in the report.

2. If the person applying for experience credit was

unable to sign the report but is mentioned in the certification as having provided significant professional assistance, a proportional amount of credit based on the number of contributors to the report can be requested.

3. Credit will not be granted if professional assistance was not disclosed.

B. Only appraisals of single-family, one to four unit

residential property, or vacant sites suitable for single-family or farm/timber acreage which included the valuation of a single-family dwelling shall be considered for residential experience.

C. A minimum of two years (24 months) of experience

shall be required for residential certification.

D. Residential appraisal points shall be awarded as

follows.

|1. one unit dwelling |1 point |

|(house, townhouse, condominium) | |

|2. two to four unit dwelling |2 points |

|(apartment, duplex, condominium) | |

|3. residential lot |2 points |

|(1-4 family) | |

|4. residential subdivision sites |2 points |

|(not to exceed five points per subdivision) | |

|5. farm or timber acreage suitable for a house site | |

|less than 10 acres |1 point |

|10 to 100 acres |2 points |

|over 100 acres |3 points |

|6. rural residence - one unit primary dwelling, | |

|10 acres or less |1 point |

|7. ranchette - part time rural use, 10 to 25 acres, | |

|with main dwelling and outbuildings, such as | |

|additional residence, barns, and/or other outbuildings| |

| |3 points |

|8. all other unusual structures or acreage, larger or |Submitted to |

|more complex than typical properties described herein |board for |

| |determination |

| |(2 to 5 points) |

|9. instruction of an approved residential course | |

|consisting of at least 20 classroom hours (not to | |

|exceed 16 points per year) |4 points |

|10. residential appraisal textbook authorship(not to |Submitted to |

|exceed 20 points per year) |board for |

| |determination |

|11. residential journal articles in journals of |10 points |

|approved national appraisal organizations (not to | |

|exceed 20 points per year) | |

|NOTE : The Cumulative Points For Items 9, 10, And 11 Shall Not |

|Exceed 25% Of The Total Points For Residential Certification. |

|12. review of appraisals shall be worth 20% of the points awarded for |

|the appraisal (not to exceed 20 points per year) |

E. Applications for experience credit must be submitted

on forms prescribed by the board and must be notarized and accompanied by the prescribed fees specified in R.S.

37:3407.

F. Verification of experience may include any or all of

the following:

1. client verification of appraisal reports for which the applicant has requested experience credit;

2. submission of selected reports to the board upon

request to determine compliance with the Uniform Standards of Professional Appraisal Practice (USPAP);

3. field inspection of all reports identified by the

applicant at the applicant's office during normal business

hours;

4. requiring an applicant to personally appear before the board, or provide additional information deemed necessary by the board to make an informed decision on an application for certification;

5. at least 125 experience credit points from complete appraisals reported in self contained or summary appraisal.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10313. General Certification Experience

A. A minimum of 300 credit points is required for

general certification. Regardless of the number experience

points earned in any given year, the maximum allowable

credit that can be applied toward the experience requirement is 100 points. There is no minimum point requirement. For example:

|1996 |103 points |= |1.00 |experience year |

|1995 |145 points |= |1.00 |experience year |

|1994 |53 points |= |.53 |experience year |

|1993 |60 points |= |.60 |experience year |

| |361 points |= |3.13 |experience years |

1. When an appraisal report is signed by more than

one person, credit for said assignment must be divided

equally among all signatories. For the purpose of granting

credit, a person signing in the capacity of a Review or

supervisory Appraiser is not considered as a co-signer on the report, provided that his role as such is clearly indicated in the report.

2. If the person applying for experience credit was

unable to sign the report but is mentioned in the certification as having provided significant professional assistance, a proportional amount of credit based on the number of contributors to the report can be requested.

3. Credit will not be granted if professional assistance was not disclosed.

B. A minimum of three years (36 months) of experience shall be required for general certification.

C. No more than 100 residential experience points shall

be accepted for credit toward general certification.

1. A certified residential appraiser applying for

general certification shall be granted the maximum

allowable credit of 100 residential experience credit points upon request.

D. General appraiser points shall be awarded as follows:

|1. apartments |

|5 - 20 units |4 points |

|21 - 100 units |8 points |

|over 100 units |10 points |

|2. hotels/motels |

|50 or fewer units |6 points |

|51 - 150 units |8 points |

|over 150 units |10 points |

|3. meeting/conference/auditorium |

|20,000 square feet or less |4 points |

|over 20,000 square feet |6 points |

|4. industrial/warehouse buildings |

|20,000 square feet or less |4 points |

|over 20,000 square feet |8 points |

|over 100,000 square feet (multiple tenants) |10 points |

|5. office buildings |

|10,000 square feet or less |4 points |

|over 10,000 square feet |8 points |

|over 100,000 square feet (multiple tenants) |10 points |

|6. condominium (must include income approach) |

|5 - 30 units |6 points |

|over 30 units |10 points |

|7. retail buildings |

|10,000 square feet or less |6 points |

|over 10,000 square feet (single tenant) |8 points |

|over 50,000 square feet (multiple tenants) |10 points |

|8. acreage of non-residential land for commercial or multiple |

|family use |

|100 acres or less |3 points |

|over 100 acres (direct sales analysis only) |6 points |

|over 100 acres (including income approach) |8 points |

|9. timber/farm acreage for commercial or multiple family use |

|100 - 200 acres |3 points |

|over 200 acres (direct sales analysis only) |6 points |

|over 200 acres (including income approach to value) |8 points |

|10. all other unusual structures which are much larger|Submitted to board |

|or more complex than the typical properties described |for determination |

|herein items (1) - (9) | |

|11. pasture or grazing enterprises |

|25 - 50 acres |1 Point |

|51 - 100 acres |2 Points |

|101 - 500 acres |3 Points |

|501 - 2,000 acres |6 Points |

|over 2,000 acres |8 Points |

|12. row crop enterprises |

|25 - 50 acres |2 Points |

|51 - 100 acres |3 Points |

|101 - 500 acres |4 Points |

|501 - 2,000 acres |6 Points |

|over 2,000 acres |10 Points |

|13. orchard/vineyard, plant nursery enterprises |

|50 acres or less |2 Points |

|51 - 100 acres |4 Points |

|101 - 500 acres |8 Points |

|over 500 acres |10 Points |

|14. aquaculture enterprises |

|50 acres or less |2 Points |

|51 - 100 acres |4 Points |

|101 - 500 acres |8 Points |

|over 500 acres |10 Points |

|15. truck farm enterprises |

|50 acres or less |2 Points |

|51 - 100 acres |4 Points |

|101 - 500 acres |6 Points |

|over 500 acres |8 Points |

|16. dairy enterprises |

|50 or less cow milking herd |4 Points |

|51 - 100 cow milking herd |6 Points |

|over 100 cow milking herd |8 Points |

|17. diversified agricultural operations of over 500 |10 Points |

|acres involving two or more of the above enterprises, | |

|assuming multiple disciplines are | |

|exhibited in the report | |

|18. timberland appraisals |

|40 - 100 acres |2 Points |

|100 - 500 acres |3 Points |

|500 - 2,000 acres |5 Points |

|2,000 - 10,000 acres |7 Points |

|over 10,000 acres |Submitted to board |

| |for determination |

|19. specialized agricultural properties |Submitted to board |

| |for determination |

|Note: No more than 40% of the cumulative points may be earned from any |

|one category (items 1-19). The applicant may request a waiver of this |

|requirement based on his unique depth of experience in a single area. |

|20. Review of appraisals shall be worth 20% of the points |

|awarded for the appraisal (not to exceed 20 points per year). |

|21. instruction of an approved general course |10 points |

|consisting of at least 20 classroom hours (not to | |

|exceed 20 points per year) | |

|22. appraisal textbook authorship in general appraisal|Submitted to board |

|topics (not to exceed 20 points per year) |for determination |

|23. general field journal articles in journal of an |10 points |

|approved national appraisal organization (not to | |

|exceed 20 points per year) | |

NOTE: The cumulative points for Items 21, 22, and 23 shall not exceed 25% of the total points for general certification.

E. At least 150 experience credit points must come from complete appraisals reported in self contained or summary appraisal reports. The reports must include a direct sales approach, cost data approach, and income data approach.

F. Verification of experience may include any or all of

the following:

1. client verification of appraisal reports for which the applicant has requested experience credit;

2. submission of selected reports to the board upon

request to determine compliance with the Uniform Standards of Professional Appraisal Practice;

3. field inspection of all reports identified by the

applicant at the applicant’s office during normal business

hours;

4. requiring an applicant to personally appear before the board, or provide additional information deemed necessary by the board to make an informed decision on an application for certification.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10315. Appraisal Review Requirements

A. In reviewing an appraisal, an appraiser must observe

the following specific guidelines:

1. identify the report being reviewed, the real estate

and real property interest being appraised, the effective date of the opinion in the report being reviewed, and the date of the review;

2. identify the scope of the review process to be

conducted;

3. form an opinion as to the adequacy and relevance

of the data and the propriety of any adjustments to the data;

4. form an opinion as to the appropriateness of the

appraisal methods and techniques used to develop the

reasons for any disagreements;

5. form an opinion as to the correctness and

appropriateness of the analyses, opinions, and/or conclusions in the report being reviewed, and develop the reasons for any disagreement;

6. state in the letter of transmittal whether or not

exterior or interior building inspections were made and, if

so, when and by whom;

7. the review must be in writing and include items 1-6.

B. In reporting the results of an appraisal review, and

appraiser must:

1. disclose the nature, extent, and detail of the review process undertaken;

2. disclose the information that must be considered in Section 10315.A.1 and 2;

3. set forth the opinions, reasons, and conclusions

required in Section 10315.A.3, 4, and 5;

4. include a signed certification.

C. In reviewing an appraisal and reporting the results of

that review, an appraiser must separate the review function

from any other function.

D. No more than 20 points shall be awarded as

experience credit in any one year for review of appraisals.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10317. Co-signed Reports, Reviews, Articles and

Textbooks

A. The prorata number of points of each co-signed

report, review, article and textbook shall be awarded to each signer of the report.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

Chapter 104. Education Providers/Course Approval

§10401. Qualifying and Continuing Education Course

Providers

A. Educational courses offered by the following

providers will be considered by the board:

1. appraisal organizations;

2. colleges and universities;

3. schools certified by the Louisiana Real Estate

Commission;

4. federal or state entities;

5. proprietary schools registered with the Louisiana

Proprietary School Commission, a division of the Louisiana State Department of Education; and,

6. other educational providers approved by the board.

B. Education providers must apply directly to the board

for qualifying and continuing education course approval.

Application forms will be provided by the board.

Information to be submitted for each course offering shall

include:

1. course content;

2. program structuring;

3. course completion standards;

4. instructor qualifications;

5. minimum number of classroom hours;

6. textbook and course materials;

7. any additional information as requested by the

board.

C. Any request from an approved education provider for an additional course must be submitted to the board and approval granted by the board at least 30 days prior to the course presentation.

D. Upon approval by the board, courses for each

provider will be listed on the board’s approved course list

through December 31 following the date approved. The

board may extend such approval for the next renewal period if course materials remain current or are updated as law or rule changes may require.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10403. Certification of Education Providers

A. Certification as an education provider shall be granted only to persons who bear a good reputation for honesty, trustworthiness, integrity, and competence to deliver quality instructional services, and only when proof of such qualifications has been presented to the board. The occurrence of any of the following events shall constitute grounds for refusal to grant a certification as an education provider:

1. the applicant has been convicted of forgery,

embezzlement, obtaining money under false pretenses,

larceny, extortion, conspiracy to defraud, or theft, or has

been convicted of a felony or a crime involving moral

turpitude in any court of competent jurisdiction;

2. the applicant had made a false statement of material fact on the application;

3. the applicant refuses to agree to monitoring of

courses by the board or its authorized representatives.

B. Upon approval by the board, education providers will be certified for a period of one year with the certification expiring annually on December 31.

C. Certificates issued to education providers will be

issued in the legal name of the applicant.

D. Education providers shall:

1. submit monthly schedules and attendance reports to the board as required;

2. insure that all course offerings satisfy the minimum standards of approval endorsed by the Appraisal Qualifications Board of The Appraisal Foundation as established by the Federal Financial Institutions Examination Council or its successor;

3. insure that course offerings specified by the board satisfy all requirements mandated by the board;

4. maintain the attendance records of each student for a period of five years following the date the student

completed a course offered by the provider;

5. provide each student with a written cost and refund policy regarding the course offering;

6. insure that all advertisements published or

distributed include the name of the provider as registered

with the board;

7. report any change in business address or telephone number to the board in writing within 10 days of the date of the change.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999.

§10405. Course Requirements

A. The board may require approved providers to follow

model curriculum guidelines to assure comprehensive

coverage of appraisal topics which meet the educational

requirements for residential and general appraiser

certification.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10407. Qualifying Education

A. Courses accepted for qualifying education credit

toward residential or general appraiser certification must

include subjects related to real estate appraisal as specified

in the following areas.

1. Residential Appraiser Certification

a. Influences on real estate value.

b. Legal consideration in appraisal.

c. Types of value.

d. Economic principles.

e. Real estate market and analysis.

f. Valuation process.

g. Property description.

h. Highest and best use analysis.

i. Appraisal math and statistics.

j. Sales comparison approach.

k. Site value.

l. Cost approach.

m. Income approach.

n. Valuation of partial interests.

o. Appraisal standards and ethics.

p. Narrative report writing.

2. General Appraiser Certification

a. Influences on real estate value.

b. Legal considerations in appraisals.

c. Types of value.

d. Economic principles.

e. Real estate markets and analysis.

f. Valuation process.

g. Property description.

h. Highest and best use analysis.

i. Appraisal math and statistics.

j. Sales comparison approach.

k. Site value.

l. Cost approach.

m. Income approach.

n. Valuation of partial interests.

o. Appraisal standards and ethics.

p. Narrative report writing.

B. Credit toward the qualifying educational requirement for residential and general appraiser certification will only be granted to those courses which include at least 15 hours of instruction, require successful completion of a final examination and cover specific subjects as defined by the board.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10409. Continuing Education

A. Courses accepted for credit toward the continuing

education requirement for residential and general certified

appraisers may include, but are not limited to, the following topics:

1. ad valorem taxation;

2. arbitration;

3. business courses related to the practice of real estate appraisal;

4. development cost estimating;

5. ethics and standards of professional practice;

6. land use planning, zoning, and taxation;

7. management, leasing, brokerage, and timesharing;

8. property development;

9. real estate appraisal;

10. real estate financing and investment;

11. real estate law;

12. real estate litigation;

13. real estate appraisal related computer applications;

14. real estate appraisal securities and syndication;

15. real property exchange;

16. Louisiana Real Estate Appraiser Certification Law and the rules and regulations of the Louisiana Real Estate Appraisers State Board of Certification.

B. Courses of instruction for continuing education for

state certified appraisers must consist of at least two

instructional hours. A final examination is not required on

courses administered for the purpose of continuing

education; however, if a final examination is given, proof of passage shall be furnished to students successfully

completing the examination.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10411. Instructor Qualifications

A. Instructors for qualifying education courses must

satisfy at least one of the following qualification

requirements:

1. a baccalaureate degree in any field and three years of experience directly related to the subject matter to be taught; or

2. a masters degree in any field and one year of

experience directly related to the subject matter to be taught; or

3. a masters or higher degree in a field that is directly related to the subject matter to be taught; or

4. five years of real estate appraisal teaching

experience directly related to the subject matter to be taught; or

5. seven years of real estate appraisal experience

directly related to the subject matter to be taught.

B. Instructors for continuing education courses must

satisfy at least one of the following qualification

requirements:

1. three years of experience directly related to the

subject matter to be taught; or

2. a baccalaureate or higher degree in a field directly related to the subject matter to be taught; or

3. three years of experience teaching the subject

matter to be taught; or

4. a combination of education and experience

equivalent to 1, 2, or 3 above.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisal Board of

Certification, LR 25:0000 (August 1999).

§10413. Classroom Hour Defined

A. Consistent with the requirements of the Appraiser

Qualification Board of the Federal Financial Institutions

Examination Council, a classroom hour is defined as 60

minutes, of which 50 minutes are instruction. The prescribed number of classroom hours may include time devoted to examinations which are considered to be part of the course.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisal Board of

Certification, LR 25:0000 (August 1999).

§10415. Compliance with Americans With Disabilities

Act (ADA)

A. For purposes of meeting the requirements of the

Americans With Disabilities Act (ADA), the board may

permit an alternative method of course delivery other than

the regular classroom method of presentation. Verification of disability of the individual requiring the completion of

course work through an alternative delivery method may be required by the board prior to granting such a request.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisal Board of

Certification, LR 25:0000 (August 1999).

§10417. Distance Education Courses

A. Distance education courses may be used for

qualifying education credit for certification and continuing

education after certification provided the courses meet the

conditions prescribed by the Appraiser Qualification Board

of the Appraisal Foundation regarding the accreditation of

the presenter of the course or approval of the course by the American Council on Education’s Program on Non-

Collegiate Sponsored Instruction or under the Appraiser

Qualification Board’s Course Approval Program.

B. Any educational course based on the geographical

separation of the learner and the instructor (e.g. CD ROM,

on-line learning, correspondence courses, video

conferencing, etc.) must provide for interaction between the learner and the instructor. Courses designed for both

qualifying education credit and continuing education credit must include testing and proof of passage shall be furnished to students successfully completing the examination.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

§10419. Video Presentations in Classroom Instruction

A. Video presentations will be accepted for qualifying

and continuing education credit only when used as a training aid by an instructor in a classroom setting.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisal Board of

Certification, LR 25:0000 (August 1999),

§10421. Combining Appraisal and Real Estate

Prelicensing Courses Prohibited

A. Appraisal courses combined with real estate

salesperson and/or broker prelicensing courses offered by

schools certified by the Louisiana Real Estate Commission and approved by the board as education providers will not be accepted by the board as qualifying education.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisal Board of

Certification, LR 25:0000 (August 1999).

§10423. Determination of Credit Hours For Qualifying

Education

A. Each course credited toward an individual’s

educational requirement must represent a progression in

which the individual’s knowledge is increased. Full credit

will not be granted to an individual for courses completed

which are repetitive in nature.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisal Board of

Certification, LR 25:0000 (August 1999).

§10425. Final Examination on Additional Education

Required by Board

A. A final examination is required on courses

administered for the purpose of additional education when

directed by the board. Completion of these courses shall be evidenced by a certificate of course completion issued by the education provider. Such courses shall not be used to satisfy the requirement for continuing education in the applicable recertification period.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395.

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisers Board of

Certification, LR 25:0000 (August 1999).

Chapter 105. Investigations and Adjudicatory

Proceedings

§10501. Investigations

A. The board may, upon its own motion, and shall upon

the verified complaint in writing of any person, investigate

the actions of a certificate holder, or any person who

assumes to act as such. Written complaints shall bear the

signature of the complainant or that of his legal

representative before any action will be taken thereon by the board.

B. Upon documented probable cause the executive

director of the board may issue written authorization to

investigate apparent violations of the Louisiana Real Estate

Appraisers Certification Law and/or the rules and

regulations of the board.

C. If during the conduct of an investigation documented

probable cause is established indicating that violations of the Louisiana Real Estate Appraisers Certification Law and/or the rules and regulations of the board have been committed by any certificate holder other than the certificate holder against whom the original complaint was made, the additional certificate holders may be added as respondents to the investigation in the absence of any written complaint alleging such violations.

D. Investigations alleging violations of the Louisiana Real Estate Appraisers Certification Law and/or the rules and regulations of the board shall be investigated by the staff of the Louisiana Real Estate Commission.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisal Board of

Certification, LR 25:0000 (August 1999).

§10503. Technical Assistance

A. In any investigation conducted by the staff of the

Commission, the chairman of the board may be requested to assign a member of the board to provide technical assistance to the investigator conducting the investigation.

B. When a member of the board has been assigned to

provide technical assistance to a Commission investigator,

the member shall review the findings and recommendation

resulting from the investigation. A written certification of the review signed by the board member shall be provided to the Commission investigator and appended to the report of investigation.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisal Board of

Certification, LR 25:0000 (August 1999).

§10505. Cooperation

A. Every certificate holder shall cooperate fully with and

answer all questions propounded by Commission personnel conducting an investigation for the board.

B. Every certificate holder shall produce any document, book, or record in the certificate holder's possession, or under his control, concerning any matter under investigation by Commission personnel conducting an investigation for the board.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisal Board of

Certification, LR 25:0000 (August 1999).

§10507. Adjudicatory Proceedings

A. When, as a result of an investigation, it appears that

violations of the Louisiana Certified Real Estate Appraisers Certification Law may have been committed by a certificate holder, the violations may be adjudicated through informal or formal adjudicatory proceedings.

B. The complaint may be concluded informally without

public hearing on the recommendation of the hearing

examiner and the concurrence of the executive director.

1. A preliminary notice of adjudication shall be issued to advise the respondent of the violation or violations alleged and to advise the respondent that the matter can be resolved informally should the respondent desire to admit to committing any act or acts specified and submits a written request that the matter be resolved informally.

2. A hearing officer shall be appointed by the

executive director to conduct an informal hearing with the

respondent.

3. The informal hearing shall be attended by the case investigator, or in the absence of the case investigator, the chief real examiner, who shall respond to questions concerning the investigation which resulted in the allegations, and the hearing examiner, who shall inform the hearing officer of the administrative, jurisdictional, and other matters relevant to the proceedings. No evidence shall be presented, no witnesses shall be called, and no formal transcript of the proceedings shall be prepared. Statements made during the informal proceedings may not be introduced at any subsequent formal adjudicatory proceedings without the written consent of all parties to the informal hearing.

4. Following an admission by the respondent at the

informal hearing that violations were committed as alleged, the hearing officer may enter into a recommended stipulation and consent order to include the imposition of any sanctions authorized by the Louisiana Real Estate Appraisers Certification Law. In the written document, the respondent must stipulate to having committed an act or acts in violation of the Louisiana Real Estate Certification Law or the rules and regulations of the board, accept the sanctions recommended by the hearing officer, and waive any rights to request a rehearing, reopening, or reconsideration by the

board, and the right to judicial appeal of the consent order.

5. If, at the informal hearing, the respondent does not admit to having committed the act or acts specified, does not accept the sanctions recommended by the hearing officer, or does not waive the specified appellate rights, the alleged violations shall be referred to a formal adjudicatory hearing.

6. If the respondent does execute a stipulation and

consent order, the executive director shall submit the

document to the board at the next regular meeting for

approval and authorization for the executive director to

execute the Consent Order in the name of the board.

7. The actions of the board relative to all consent

orders shall be noted in the minutes of the meeting at which the consent order is approved and authorization is granted to the executive director to execute the order in the name of the board.

8. Any consent order executed as a result of an

informal hearing shall be effective on the date approved by

the board.

C. All formal public adjudicatory hearings shall be

conducted under the auspices of R.S. 37:3409 and Chapter

13 of Title 49 of the Louisiana Revised Statutes.

1. Board members who have provided technical

assistance in any matter being adjudicated at formal

adjudicatory proceedings shall recuse themselves and not

participate in any portion of the proceedings.

2. The order issued by the board pursuant to any

formal public adjudicatory proceeding shall become

effective on the eleventh day following the date the order is issued by the board and entered into the record at the

proceedings.

3. The date of entry is the date the order is issued by

the board and entered into the record at the formal

adjudicatory proceedings.

4. If a request for rehearing, reopening, or

reconsideration of the order of the board is timely filed and

denied by the board, the order of the board shall become

final on mailing of the notice of the board’s final decision

on the request.

5. An order of the board shall be subject to rehearing,

reopening or reconsideration by the board on receipt of a

written request from a respondent. An application for

rehearing, reopening or reconsideration must be received at

the office of the board within 10 days from the date of entry of the order rendered by the board.

6. The request shall be reviewed by the board attorney for compliance with the Administrative Procedure Act. A finding by the board attorney that the request does not establish grounds for rehearing, reopening or reconsideration shall result in a denial for the request.

7. Proceedings for judicial review of an order issued

by the board may be instituted by filing a petition for judicial review in the Nineteenth Judicial District Court in the parish of East Baton Rouge.

8. In the event a request for rehearing, reopening or

reconsideration has been file with the board, the party

making the request shall have 30 days from the final

decision on the request within which to file a petition for

judicial review.

9. If a request for rehearing, reopening or

reconsideration is not filed with the Board, the petition for

judicial review must be filed in the Nineteenth Judicial

District Court within 30 days after the mailing of the order

of the board.

10. The filing of a petition for judicial review by a

respondent certificate holder does not itself stay enforcement of an order of the board. A stay of enforcement shall be granted only when directed by the court conducting a judicial review of adjudication.

D. On a finding that a respondent has committed the

violations as alleged in any formal or informal adjudicatory proceedings, the board may assess the respondent the administrative costs of the proceedings, as determined by the board. Payment of these costs shall be a condition of satisfying any order issued by the board.

AUTHORITY NOTE: Promulgated in accordance with R.S.

37:3395

HISTORICAL NOTE: Promulgated by the Department of

Economic Development, Real Estate Appraisal Board of

Certification, LR 25:0000 (August 1999).

Julius C. Willie

Executive Director

9908#020

APPRAISAL OVERVIEW OF STANDARDS AND ETHICS

I. Appraisal Standards of Practice

A. Every state appraisal License/Certification law requires appraisers to perform work which conforms to “standards of professional practice”.

B. The Uniform Standards of Professional Practice (USPAP) which has been developed by the Appraisal Standards Board of The Appraisal Foundation and published by the Federal Appraisal Sub-Committee of the Federal Financial Institutions Examination Council, has been adopted as the standard practice in virtually every state.

C. USPAP consists of a set of ethics provisions and 10 standards which set forth the proper method of developing and communicating real property appraisals, review appraisals, Consulting services, Mass Appraisal, Personal Property Appraisal and Business Appraisal.

D. The ethics provisions are divided into four sections: conduct, management, confidentiality, and record-keeping. The professional appraisal practice of Real Estate appraisers is regulated by standards 1 through 3, and those appraisers who provide consulting services are regulated by Standards 4 and 5.

II. Synopsis of Ethics Provisions of USPAP

A. Conduct – according to the Conduct Provision, an appraiser must act in an ethical, competent and lawful manner. If an appraiser could reasonably be perceived to be acting as an unbiased third party, he/she must act as one.

B. Management – according to the Management Provision, accepting compensation based on the results of an appraisal is unethical. Any payment in connection with obtaining an appraisal assignment must be disclosed. False advertising is unethical.

C. Confidentiality – according to the Confidentiality Provision, the results of an appraisal, and data termed confidential by the client may not be disclosed to anyone but the client, those authorized by the client, a peer review committee, or those authorized by law.

D. Record Keeping – written records must be prepared for every appraisal assignment and retained for 5 years after preparation, or 2 years after the final disposition of a judicial proceeding, whichever is longer.

E. Competency Provision – before accepting any assignment, an appraiser must:

5. properly identify the appraisal problem

6. have the knowledge and experience to perform the appraisal properly

7. disclose the lack of knowledge or experience to the client and take whatever steps necessary to appraise the property properly

8. disclose in the report the lack of knowledge or experience and the steps taken

F. Departure Provision – an appraiser may accept an assignment to do something less than, or different from, from what is required by the specific guidelines if:

4. the assignment is not so limited in scope that the appraisal would mislead or confuse the client and/or the intended user(s) of the appraisal

5. the appraiser advises the client that the assignment calls for something other than what is normally required by the standards and that the report will contain a statement to that effect.

6. Departure from “binding requirements” is not allowed

In the 1995 version of USPAP, the Appraisal Standards Board for the first time identified two specific types of appraisals, the main distinguishing feature being whether or not the Departure Provision was invoked during the development of the appraisal.

• Complete Appraisal – an appraisal which is developed without invoking the Departure Provision

• Limited Appraisal – an appraisal in which the Departure Provision is invoked

Even if the Departure Provision is invoked, an appraiser is NEVER allowed to produce an appraisal that is confusing or misleading.

III. Standard No. 1: Developing Appraisals

A. In developing a real property appraisal, an appraiser must (no departure):

4. be aware of and correctly use recognized methods and techniques

5. not commit a substantial error of omission or commission

6. not be careless or negligent – committing a series of minor errors resulting in a misleading appraisal

B. Appraisers must follow these specific guidelines (departure permitted):

16. identify the real estate

17. identify the real property interest

18. define the purpose and use of the appraisal

19. consider the extent of data collection

20. describe any special limiting conditions

21. identify the effective date of the appraisal

22. define the value sought. (If market value, state whether the value is in terms of cash, cash equivalency; or if based on sub-market or unusual financing, state the terms and support the value conclusion with market data).

23. consider: easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, etc.

24. consider if a fractional interest, physical segment, or partial holding contributes pro rata to the value of the whole

25. identify and consider any personal property or intangible items that are not real property but are included in the value

26. consider the effect on use and value of the following factors: existing land use regulations, reasonably probable changes to such land use regulations, economic demand, physical adaptability of the property, neighborhood trends, highest and best use

27. understand that land should be appraised as if vacant and available for development to its highest and best use (with a few exceptions)

28. understand that improvements are appraised based on their actual contribution to the value of the site

29. value the site by a proper method

30. perform the three approaches to value and collect, verify, describe, analyze and reconcile:

• comparables to estimate cost new of the improvements

• comparables to estimate accrued depreciation

• comparable sales to estimate the Subject’s value

• comparable rentals to estimate the market rent

• comparable operating expense data to estimate operating expenses

• comparables to estimate capitalization and discount rates

16. base projections of future income and expenses on supporting data

17. in valuing a leased fee or leasehold, analyze the effect on value of the lease terms

18. Analyze the effect on value of the assemblage of the estates or component parts of a property. The whole should not be valued by adding together the individual values of the various estates or component parts.

19. Analyze the effect on value of anticipated public or private improvements, on or off site, as reflected by the market activity on the Effective Date.

20. Consider all proper procedures and market information required, including physical, functional, and external market factors.

21. Appraise proposed improvements only after examining:

• plans, specifications, etc. indicating the scope and character of the improvements

• evidence indicating the probable time of completion

• evidence supporting development costs, anticipated earnings, occupancy projections, and anticipated competition at the time of completion

22. Use all of the above-described information in the development of an appraisal.

An appraiser must (no departure):

4. analyze current Agreements of Sale, options, or listings of the Subject, if normally available

5. consider any prior sale of the Subject Property (1 ear for 1-4 family residences, 3 years for all other property)

6. consider and reconcile the quality and quantity of data in the three approaches and the applicability of each approach.

IV. Standard No. 2: Communicating an Appraisal

A. Each written or oral real property appraisal report must (no departure):

4. be understandable and not misleading

5. contain enough information so those who are expected to rely on it can understand it

6. disclose any unusual assumption or limiting condition and indicate the impact on value

B. Each written real property appraisal report must (no departure):

5. be prepared according to the requirements of one of three formats and identify which of the formats is being used

6. Self-Contained Report must contain 12 listed items on following page.

7. Summary Report must contain 12 listed items on following page.

8. Restricted Report must contain 12 listed items on following page.

C. Each written report must contain a certification similar to the following (no departure):

The appraiser certifies that, to the best of knowledge and belief:

• The facts are true and correct

• The analyses, opinions, and conclusions are unbiased and limited only by the listed assumptions and limiting conditions

• The appraiser has no (or specified) present or prospective interest in the Subject Property

• The appraiser has no (or specified) personal interest or bias regarding the parties involved

• The appraiser’s compensation is not based on a predetermined value or direction of value favoring the client, or on the estimated value, or on a stipulated result, or the occurrence of a subsequent event

• The appraiser’s analyses, opinions, and conclusions were developed and reported according to the standards

• The appraiser (or anyone signing) has (or has not) inspected the Subject

• No one provided significant assistance except those listed in the report.

D. Every oral report (including court testimony) must include the above items if possible.

E. An appraiser signing a report prepared by another accepts full responsibility for everything contained in the report.

V. Standard No. 3: Real Property and Personal Property Appraisal, Review, Development and Reporting

A. In performing an appraisal review assignment involving a real property or personal property appraisal, an appraiser acting as a reviewer must develop and report a credible opinion as to the quality of another appraiser’s work must clearly disclose the scope of work performed in the assignment.

B. The appraisal review requirements in this Standard do not apply:

• The activity of “review” or “audit” in the context of other professions, such as accounting.

• An appraiser’s study of work prepared by other types of experts, such as engineers or other consultants, or to work prepared by an appraiser in a consulting assignment under Standards 4 and 5.

• Review of an appraiser’s work by non-appraisers, such as in “administrative reviews”.

C. In developing an appraisal review, the reviewer must:

• Identify the reviewer’s client and intended users, the intended use of the reviewer’s opinions and conclusions, and the purpose of the assignment.

• Identify the subject of the appraisal review assignment, date of the review, property and ownership interest appraised (if any) in the work under review, date of the work under review and the effective date of the opinion in the work under review, and the appraiser(s) who completed the work under review, unless the identity was withheld.

• Identify the scope of work to be performed.

• Develop an opinion as to the completeness of the material under review the scope of work applicable in the assignment.

• Develop an opinion as to the apparent adequacy and relevance of the data and the propriety of any adjustments in the data.

• Develop an opinion as to the appropriateness of the appraisal methods and techniques used and develop the reasons for any disagreement.

• Develop an opinion as to whether the analyses, opinions, and conclusions in the work under review are appropriate and reasonable, and develop the reasons for any disagreement.

D. In reporting the results of an appraisal review, the reviewer must communicate each analysis, opinion, and conclusion in a manner that is not misleading.

E. In reporting the results of an appraisal review, the reviewer appraiser must:

• State the identity of the client, by name or type, and intended users; the intended use of the assignment results; and the purpose of the assignment.

• State the information that must be identified in accordance with this Standard.

• State the nature, extent and detail of the review process undertaken (i.e., the scope of work identified in accordance with this Standard.

• State the opinions, reasons, and conclusions required, given the scope of work identified in compliance with this Standard.

• Include all pertinent information.

• Include a signed certification similar in content to the following:

I certify that, to the best of my knowledge and belief:

- the facts and data reported by the reviewer and used in the review process are true and correct.

- the analyses, opinions and conclusions in this review report are limited only by the assumptions and limiting conditions stated in this review report, and are my personal, impartial, and unbiased professional analyses, opinions and conclusions.

- I have no (or the specified) present or prospective interest in the property that is the subject of this report, and no (or the specified0 personal interest with respect to the parties involved.

- I have no bias with respect to the property that is the subject of this report or to the parties involved with this agreement.

- my engagement in this assignment was not contingent upon developing or reporting predetermined results.

- my compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of this review.

- my analyses, opinions and conclusions were developed and this review report was prepared in conformity with the Uniform Standards of Professional Appraisal Practice.

- I did not (did) personally inspect the subject property of the report under review.

- no one provided significant real or personal property appraisal or appraisal review assistance to the person signing this certification. (If there are exceptions, the name of each individual(s) providing real or personal property appraisal or appraisal review assistance be stated.)

F. An oral appraisal review report must address the substantive matters set forth in this Standard.

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Class A1

Chap. 1 and 4

Class A2

Chapter 5

Class A3

Chapter 6

Class A4

Chapters 7 and 14

Class A5

Chapters 8 and 9

Class C1

Appendix

Class B1

Chapter 10

Class B2

Chapter 10

Class B4

Chapter 12

Class B3

Chapter 11

Class B5

Chapter 13

Class C1

Appendix

200’

100’

150’

Class C5

Laws and Rules

Class C3

Chapter 15

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