Commercial Appraisal - EDRnet
Summary Report
REAL ESTATE APPRAISAL
Of
Subject Property Name
[pic]
Subject Address, Subject City
Subject County County
Subject State, Subject Zip/Postal
As of
January 21, 2013
Prepared For
Mr./Ms. Ima Lender
Bank & Trust, Co.
Client Address
Client City, Client State/Province, 03301
Client File:
ClientFileNum
Prepared by
Appraisal Co. Valuation & Consulting
Tom Armstrong, MAI, NH-137
-- --, --, -----
File Name:
N1 03312011
Appraisal Co. Valuation & Consulting
|[pic] | |001-555-1212 |
| |PO Box 001, 987 Route 1 |Fax: 001-555-2121 |
| |MyCity, |admin@ |
| |MyState/Province, 03245 | |
January 21, 2013
Mr./Ms. Ima Lender
Bank & Trust, Co.
Client Address
Client City, Client State/Province 03301
|Re: |Summary Report, Real Estate Appraisal |
| |Subject Property Name |
| |Subject Address, Subject City, |
| |Subject County County, Subject State, Subject Zip/Postal |
| | |
| |File Name: N1 03312011 |
Dear Mr./Ms. Lender:
At your request, we have prepared an appraisal for the above referenced property, which may be briefly described as follows:
Capsule Description here
Please reference page 11 of this report for important information regarding the scope of research and analysis for this appraisal, including property identification, inspection, highest and best use analysis and valuation methodology.
We certify that we have no present or contemplated future interest in the property beyond this estimate of value. The appraiser has not performed any prior services regarding the subject within the previous three years of the appraisal date.
Your attention is directed to the Limiting Conditions and Assumptions section of this report (page 9). Acceptance of this report constitutes an agreement with these conditions and assumptions. In particular, we note the following:
Hypothetical Conditions:
• There are no hypothetical conditions for this appraisal.
• None.
• None.
|[pic] |Mr./Ms. Lender |
| |Bank & Trust, Co. |
| |March 31, 2011 |
| |Page 2 |
Extraordinary Assumptions:
• There are no Extraordinary Assumptions for this appraisal.
• None.
• None.
Based on the appraisal described in the accompanying report, subject to the Limiting Conditions and Assumptions, Extraordinary Assumptions and Hypothetical Conditions (if any), we have made the following value conclusion(s):
Current As Is Market Value:
The “As Is” market value of the Fee Simple estate of the property, as of January 21, 2013, is
One Million Fifty Thousand One Dollars ($1,050,001)
The market exposure time preceding January 21, 2013 would have been 2 months and the estimated marketing period as of January 21, 2013 is 2 months.
Prospective As Complete Market Value:
The “As Complete” market value of the Fee Simple estate of the property, as of January 21, 2013, is
One Million Fifty Thousand Dollars ($1,050,000)
The market exposure time preceding January 21, 2013 would have been 4 months and the estimated marketing period as of January 21, 2013 is 4 months.
Prospective As Stabilized Market Value:
The “As Stabilized” market value of the Fee Simple estate of the property, as of January 21, 2013, is
One Million Fifty Thousand Dollars ($1,050,000)
The market exposure time preceding January 21, 2013 would have been 5 months and the estimated marketing period as of January 21, 2013 is 5 months.
Respectfully submitted,
Appraisal Co. Valuation & Consulting
| | |
|NH-137 |----- |
Table of Contents
Summary of Important Facts and Conclusions 6
Limiting Conditions and Assumptions 9
Scope of Work 11
Market Area Analysis 13
Market Area Location and Boundaries 14
Market Area and Property Characteristics 14
Location Map 15
Property Description 16
Site Plan/Tax Map/Survey 18
Improvements Plan 23
Subject Photographs 24
Assessment and Taxes 26
Assessment Analysis 26
Zoning 27
Highest and Best Use 28
Valuation Methodology 29
Analyses Applied 29
Cost Approach 30
Land Value 30
Sales Comparison Approach – Land Valuation 30
Land Comparables 31
Comparables Map 36
Analysis Grid 36
Comparable Land Sale Adjustments 38
Sales Comparison Approach Conclusion – Land Valuation 38
Cost Analysis 39
Depreciation Analysis 39
Cost Approach Conclusion 40
Sales Comparison Approach 42
Comparables 42
Comparables Map 47
Analysis Grid 47
Comparable Sale Adjustments 49
Sales Comparison Approach Conclusion 49
Income Approach 51
Direct Capitalization Analysis 51
Potential Gross Income (PGI) 51
Space Types & Occupancy 51
Rent Roll 52
Recent Leases 54
Overall Rent Ranges 54
Major Tenants 54
Lease Expiration Schedule 54
Market Rent 55
Comparables Map 59
Analysis Grid 59
Comparable Rent Adjustments 60
Summary of Market Rent 62
Potential Gross Income Summary 63
Other Income 64
Vacancy and Collection Loss 64
Effective Gross Income 64
Expenses 64
Net Operating Income 76
Capitalization Rate 76
Capitalization to Value 79
Direct Capitalization Analysis Conclusion 79
Effective Gross Income Multiplier Analysis (EGIM) 80
Net Income Multiplier Analysis (NIM) 81
Stabilization Calculations 82
Final Reconciliation 85
Value Indications 85
Value Conclusion 85
Certification Statement 87
Addenda 88
Glossary 90
Summary of Important Facts and Conclusions
|General |
|Subject: |Subject Property Name |
| |Subject Address, Subject City, |
| |Subject County County, Subject State, Subject Zip/Postal |
| | |
| |Capsule Description here |
|Owner: |Owner Name |
|Legal Description: |Legal Desc1 |
|Date of Report: |January 21, 2013 |
|Intended Use: |The intended use is for mortgage financing. |
|Intended User(s): |The client and property owner. |
Assessment:
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|Sale History: |The subject has not sold in the last three years, according to public records. |
| |Or: |
| |The subject sold for $1,250,000on January 1, 2013. |
| |MRS SalesComnt |
| | |
| |Prior to this transaction the subject sold for Older Sale Price on Older Sale Date. |
| |Older Sale Comment. |
| | |
| |PreviousSaleComnt |
|Current Listing/Contract(s): |The subject is not currently listed for sale, or under contract. |
| |Or: |
| |The subject was listed by Listing Agency, Inc for $1,750,000 on January 21, 2013. |
| |ListingCmnt |
| |And/Or |
| |The subject is currently under option for $1,500,000. The option date is January 1, |
| |2013. OptionComnt. |
| |And/or |
| |The subject is under contract for sale for $1,500,000. |
| |Contract Date: January 21, 2013 |
| |Financing Terms: Contract Financing |
| |Buyer: ContractGrantee |
| |ContractComnt |
Land:
[pic]
Improvements:
[pic]
|Zoning: |Zoning Code |
|Highest and Best Use |HBU as vacant |
|of the Site: | |
|Highest and Best Use |HBU as improved |
|as Improved: | |
|Type of Value: |Market Value |
|Value Indications |
|Land Value: |$600,000 | | |
|Cost Approach: |$1,430,000 | | |
|Sales Comparison Approach: |$1,025,000 | | |
|Income Approach: | | | |
|Direct Capitalization |$1,090,000 | | |
|EGIM Analysis |$1,055,000 | | |
|NIM Analysis |$1,050,000 | | |
|Reconciled Value(s): |As Is |As Complete |As Stabilized |
|Value Conclusion(s) |$1,050,000 |$1,050,000 |$1,050,000 |
|Effective Date (s) |January 21, 2013 |January 21, 2013 |January 21, 2013 |
|Property Rights |Fee Simple |Fee Simple |Fee Simple |
Or
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Limiting Conditions and Assumptions
Acceptance of and/or use of this report constitutes acceptance of the following limiting conditions and assumptions; these can only be modified by written documents executed by both parties.
This appraisal is to be used only for the purpose stated herein. While distribution of this appraisal in its entirety is at the discretion of the client, individual sections shall not be distributed; this report is intended to be used in whole and not in part.
No part of this appraisal, its value estimates or the identity of the firm or the appraiser(s) may be communicated to the public through advertising, public relations, media sales, or other media.
All files, work papers and documents developed in connection with this assignment are the property of Appraisal Co. Valuation & Consulting. Information, estimates and opinions are verified where possible, but cannot be guaranteed. Plans provided are intended to assist the client in visualizing the property; no other use of these plans is intended or permitted.
No hidden or unapparent conditions of the property, subsoil or structure, which would make the property more or less valuable, were discovered by the appraiser(s) or made known to the appraiser(s). No responsibility is assumed for such conditions or engineering necessary to discover them. Unless otherwise stated, this appraisal assumes there is no existence of hazardous materials or conditions, in any form, on or near the subject property.
Unless otherwise stated in this report, the existence of hazardous substances, including without limitation asbestos, polychlorinated biphenyl, petroleum leakage, or agricultural chemicals, which may or may not be present on the property, was not called to the attention of the appraiser nor did the appraiser become aware of such during the appraiser’s inspection. The appraiser has no knowledge of the existence of such materials on or in the property unless otherwise stated. The appraiser, however, is not qualified to test for such substances. The presence of such hazardous substances may affect the value of the property. The value opinion developed herein is predicated on the assumption that no such hazardous substances exist on or in the property or in such proximity thereto, which would cause a loss in value. No responsibility is assumed for any such hazardous substances, nor for any expertise or knowledge required to discover them.
Unless stated herein, the property is assumed to be outside of areas where flood hazard insurance is mandatory. Maps used by public and private agencies to determine these areas are limited with respect to accuracy. Due diligence has been exercised in interpreting these maps, but no responsibility is assumed for misinterpretation.
Good title, free of liens, encumbrances and special assessments is assumed. No responsibility is assumed for matters of a legal nature.
Necessary licenses, permits, consents, legislative or administrative authority from any local, state or Federal government or private entity are assumed to be in place or reasonably obtainable.
It is assumed there are no zoning violations, encroachments, easements or other restrictions which would affect the subject property, unless otherwise stated.
The appraiser(s) are not required to give testimony in Court in connection with this appraisal. If the appraisers are subpoenaed pursuant to a court order, the client agrees to pay the appraiser(s) Appraisal Co. Valuation & Consulting’s regular per diem rate plus expenses.
Appraisals are based on the data available at the time the assignment is completed. Amendments/modifications to appraisals based on new information made available after the appraisal was completed will be made, as soon as reasonably possible, for an additional fee.
Americans with Disabilities Act (ADA) of 1990
A civil rights act passed by Congress guaranteeing individuals with disabilities equal opportunity in public accommodations, employment, transportation, government services, and telecommunications. Statutory deadlines become effective on various dates between 1990 and 1997. Appraisal Co. Valuation & Consulting has not made a determination regarding the subject’s ADA compliance or non-compliance. Non-compliance could have a negative impact on value, however this has not been considered or analyzed in this appraisal.
Scope of Work
According to the Uniform Standards of Professional Appraisal Practice, it is the appraiser’s responsibility to develop and report a scope of work that results in credible results that are appropriate for the appraisal problem and intended user(s). Therefore, the appraiser must identify and consider:
● the client and intended users;
● the intended use of the report;
● the type and definition of value;
● the effective date of value;
● assignment conditions;
● typical client expectations; and
● typical appraisal work by peers for similar assignments.
This appraisal is prepared for Mr./Ms. Ima Lender, -- Bank & Trust, Co.. The problem to be solved is to estimate the 'as is' market value of the subject property. The intended use is for mortgage financing. This appraisal is intended for the use of client and property owner.
|Scope of Work |
|Report Type: |This is a Summary Report as defined by Uniform Standards of Professional |
| |Appraisal Practice under Standards Rule 2-2(B). This format provides a summary of|
| |the appraisal process, subject and market data and valuation analyses. |
|Property Identification: |The subject has been identified by the legal description and the assessors' |
| |parcel number. |
|Inspection: |A complete interior and exterior inspection of the subject property has been |
| |made, and photographs taken. |
|Market Area and Analysis of Market Conditions: |A complete analysis of market conditions has been made. The appraiser maintains |
| |and has access to comprehensive databases for this market area and has reviewed |
| |the market for sales and listings relevant to this analysis. |
|Highest and Best Use Analysis: |A complete as vacant and as improved highest and best use analysis for the |
| |subject has been made. Physically possible, legally permissible and financially |
| |feasible uses were considered, and the maximally productive use was concluded. |
|Type of Value: |Market Value |
|Valuation Analyses | |
|Cost Approach: |A cost approach was applied as there is adequate data to develop a land value and|
| |the depreciation accrued to the improvements can be reasonably measured. |
| | |
|Sales Comparison Approach: |A sales approach was applied as there is adequate data to develop a value |
| |estimate and this approach reflects market behavior for this property type. |
| | |
|Income Approach: |An income approach was applied as the subject is an income producing property and|
| |there is adequate data to develop a value estimate with this approach. |
| | |
|Hypothetical Conditions: |There are no hypothetical conditions for this appraisal. |
| |None. |
| |None. |
|Extraordinary Assumptions: |There are no Extraordinary Assumptions for this appraisal. |
| |None. |
| |None. |
|Information Not Available: |-- |
| |-- |
| |-- |
Comments
Market Area Analysis
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Optional narrative headings – delete if using table above
Market Area Location and Boundaries
Describe
Market Area and Property Characteristics
Describe
Population Trends
Describe/Analyze
Housing Trends
Describe/Analyze
Income Trends
Describe/Analyze
Major Employers
Describe/Analyze
Unemployment Trends
Describe/Analyze
Land Use Trends
Describe/Analyze
Location Map
[pic]
Property Description
Capsule Description here
Multiple parcels table – delete if only one parcel
[pic]
|Site |
|Location: |The subject is located on the south side of Route, at the southwest region of the downtown |
| |commercial district. |
|Current Use of the Property: |Improved as … |
|Site Size: |Total: 2.00 acres; 87,120 square feet |
| | |
| |Usable: 2.00 acres; 87,120 square feet |
| |Parcel 1 usable land area comments |
|Shape: |The site is roughly rectangular. |
|Frontage/Access: |The subject property has good access with frontage as follows: |
| |Primary Front Street: 310 feet |
| |Secondary Front Street: 50 feet |
| |The site has an average depth of 255 feet. It is a corner lot. |
|Visibility: |Average |
|Topography: |The subject has level topography at grade and no areas of wetlands. |
|Soil Conditions: |The soil conditions observed at the subject appear to be typical of the region and adequate |
| |to support development. |
|Utilities: |Electricity: Electricity |
| |Sewer: Sewer |
| |Water: Water |
| |Natural Gas: Gas |
| |Underground Utilities: UndergroundUtilities |
| |Adequacy: UtilitesAdequacy |
|Site Improvements: |StreetLights |
| |Sidewalk |
| |CurbGutter |
| |The landscaping consists of … |
| | |
|Flood Zone: |The subject is located in an area mapped by the Federal Emergency Management Agency (FEMA). |
| |The subject is located in FEMA flood zone X, which is not classified as a flood hazard area. |
| | |
| |FEMA Map Number: 11-22-33 |
| |FEMA Map Date: January 1, 1988 |
| | |
| |The subject is not in a flood zone. |
|Wetlands/Watershed: |WetlandsWatershed |
|Environmental Issues: |Environmental Issues |
|Encumbrance / Easements: |Encumbrance or Easement |
|Site Comments: |SiteComnt |
Insert Site #2 here (How?)
Site Plan/Tax Map/Survey
|Improvements Description |
|Development/Property Name: |Subject Property Name |
|Property Type: |Office |
|Overview: |Capsule Description here |
Multiple buildings table, delete if only one building
[pic]
|General - Building 1 |
|Building Identification: |Building 1 |
|Building Description: |BuildingDesc |
|Building Class: |A, B or C |
|Construction: |Steel and masonry |
|Construction Quality: |ConstructionQuality |
|Year Built: |1988 |
|Renovations: |-- |
|Effective Age: |20 years |
|Remaining Useful Life: |30 |
|Condition: |Good |
|Appeal/Appearance: |AppealAppearance |
|Areas, Ratios & Numbers: |Number of Stories: 2.00 |
| |Gross Building Area: 12,995 |
| |Gross Leasable Area: NA |
| |Rentable Area: 12,500 |
| |Number of Units: 14 |
| | |
| |Building Efficiency Ratio: 96.2% |
| | |
|Foundation, Frame & Exterior - Building 1 |
|Foundation: |Poured concrete slab |
|Basement/Sublevels: |1,215 square feet; NumSublevels sublevel(s) |
|Basement Use: |-- |
|Structural Frame: |FrameType |
|Column Spacing: |24 Feet |
|Bay Dimension: |0 |
|Exterior: |ExteriorWalls |
|Windows: |Windows |
|Roof/Cover: |RoofType / RoofCover |
|Service Access/ Overhead Doors: |The building is served by NumDoor overhead doors; NumDoorLeveler with levelers. |
|Other: | |
|Interior - Building 1 |
|Interior Layout: |FloorPlanLayout |
|Floor Cover: |FloorCovering |
|Walls: |Painted drywall |
|Ceilings & Ceiling Height: |Acoustic ceiling panels / 18 |
|Lighting: |A mix of fluorescent and incandescent lighting. |
|Restrooms: |Restrooms |
|Other: | |
|Mechanical Systems - Building 1 |
|Heating: |HeatType |
|Cooling: |ACType |
|Electrical: |ElectricityDesc |
|Plumbing Condition: |PlumbingCondition |
|Sprinkler: |FireSprinklerType |
|Elevators/Escalators: |NumElevator / NumEscalator |
|Security: |Security |
|Other: | |
|Comments, Building 1: |Comments |
Insert Building #2 Here (How?)
|Parking |
|Parking Type and Number of Spaces: |Type: ParkingType |
| |Spaces: 48 |
| |Condition: ParkingLotCond |
|Parking Ratio: |3.84 spaces per 1,000 square feet. |
|Other: | |
|Property Analysis |
|Design & Functional Utility: |Overall design and functional utility |
|Deferred Maintenance: |DefMaintenanceComnt |
|Capital Improvements: |Planned Capital Improvements |
|Other: | |
|Comments: |OverallPropertyComments |
Americans With Disabilities Act
Please reference the Limiting Conditions and Assumptions section of this report on page 10.
Hazardous Substances
Please reference the Limiting Conditions and Assumptions section of this report on page 10.
Improvements Plan
Subject Photographs
|Picture Here |
| |
|Description Here |
| |
|Picture Here |
| |
|Description Here |
|Picture Here |
| |
|Description Here |
| |
|Picture Here |
| |
|Description Here |
Assessment and Taxes
|Taxing Authority |Taxing Authority |
|Assessment Year |2011 |
[pic]
[pic]
Comments
Assessment comments here
Assessment Analysis
We have analyzed the assessment and corresponding taxation of competitive properties in the marketplace as a test of reasonableness compared to the subject’s current assessment and taxation.
[pic]
( Analysis(
Zoning
|Land Use Controls |
|Zoning Code |Zoning Code |
|Zoning Description |Zoning Description |
|Zoning Density/FAR |0.15 |
|Actual Density of Use |Actual density of use |
|Current Use Legally Conforming |Current Use Legally Conforming |
|Zoning Change Likely |Zoning Change Likely |
|Zoning Change Description |Zoning Change Description |
|Set Back Distance |Set Back Distance |
|Side Yard Distance |Side Yard Distance |
|Zoning Comments |Zoning Comments |
OR
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Highest and Best Use
Highest and best use may be defined as the reasonably probable and legal use of vacant land or improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.
1. Legally Permissible: What uses are permitted by zoning and other legal restrictions?
2. Physically Possible: To what use is the site physically adaptable?
3. Financially Feasible: Which possible and permissible use will produce any net return to the owner of the site?
4. Maximally Productive. Among the feasible uses which use will produce the highest net return, (i.e., the highest present worth)?
Highest and Best Use of the Site
The highest and best use of the site, as vacant, is for HBU as vacant.
HBU vacant comments
Highest and Best Use as Improved
The highest and best use of the subject as improved HBU as improved.
HBU as improved comments
Valuation Methodology
Three basic approaches may be used to arrive at an estimate of market value. They are:
1. The Cost Approach
2. The Income Approach
3. The Sales Comparison Approach
Cost Approach
The Cost Approach is summarized as follows:
Cost New
- Depreciation
+ Land Value
= Value
Income Approach
The Income Approach converts the anticipated flow of future benefits (income) to a present value estimate through a capitalization and or a discounting process.
Sales Comparison Approach
The Sales Comparison Approach compares sales of similar properties with the subject property. Each comparable sale is adjusted for its inferior or superior characteristics. The values derived from the adjusted comparable sales form a range of value for the subject. By process of correlation and analysis, a final indicated value is derived.
Final Reconciliation
The appraisal process concludes with the Final Reconciliation of the values derived from the approaches applied for a single estimate of market value. Different properties require different means of analysis and lend themselves to one approach over the others.
Analyses Applied
A cost analysis was considered and was developed because there is adequate data to develop a land value and the depreciation accrued to the improvements can be reasonably measured.
A sales comparison analysis was considered and was developed because there is adequate data to develop a value estimate and this approach reflects market behavior for this property type.
An income analysis was considered and was developed because the subject is an income producing property and there is adequate data to develop a value estimate with this approach.
Cost Approach
The Cost Approach is based on the principle of substitution - that a prudent and rational person would pay no more for a property than the cost to construct a similar and competitive property, assuming no undue delay in the process. The Cost Approach tends to set the upper limit of value before depreciation is considered. The applied process is as follows:
• Estimate the land value according to its Highest and Best Use. We have used the Sales Comparison Approach; the process is as follows:
o Comparable sales, contracts for sale and current offerings are researched and documented.
o Each comparable is analyzed and adjusted to equate with the subject property.
o The value indication of each comparable is analyzed and the data reconciled for a land value indication.
• Estimate the replacement cost of the building and site improvements.
• Estimate the physical, functional and/or external depreciation accrued to the improvements.
• Sum the depreciated value of the improvements with the value of the land for an indication of value.
Land Value
The subject’s land value has been developed via the sales comparison approach.
Sales Comparison Approach – Land Valuation
The Sales Comparison Approach is based on the premise that a buyer would pay no more for a specific property than the cost of obtaining a property with the same quality, utility, and perceived benefits of ownership. It is based on the principles of supply and demand, balance, substitution and externalities. The following steps describe the applied process of the Sales Comparison Approach.
• The market in which the subject property competes is investigated; comparable sales, contracts for sale and current offerings are reviewed.
• The most pertinent data is further analyzed and the quality of the transaction is determined.
• The most meaningful unit of value for the subject property is determined.
• Each comparable sale is analyzed and where appropriate, adjusted to equate with the subject property.
• The value indication of each comparable sale is analyzed and the data reconciled for a final indication of value via the Sales Comparison Approach.
Land Comparables
We have researched three comparables for this analysis; these are documented on the following pages followed by a location map and analysis grid. All sales have been researched through numerous sources, inspected and verified by a party to the transaction.
[pic]
[pic]
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[pic]
To insert more comp sheets:
By default, the Narrative1 template displays three comps for Land, Sales and Leases. To add more:
1. Create a new blank page in Word
2. Right-click and select Fields and Tables (or use the Narrative1 menu from Word’s main menu.)
3. Find the comps in the list, select it and click insert
Comparables Map
[pic]
Analysis Grid
The above sales have been analyzed and compared with the subject property. We have considered adjustments in the areas of:
|( Property Rights Sold |( Market Trends |
|( Financing |( Location |
|( Conditions of Sale |( Physical Characteristics |
On the following page is a sales comparison grid displaying the subject property, the comparables and the adjustments applied.
[pic]
Comparable Land Sale Adjustments
Property Rights
( Describe/Analyze(
Financing
( Describe/Analyze(
Conditions of Sale
( Describe/Analyze(
Economic Trends
( Describe/Analyze(
Location
( Describe/Analyze(
Acres
( Describe/Analyze(
Topography
( Describe/Analyze(
Shape
( Describe/Analyze(
Utilities
( Describe/Analyze(
Sales Comparison Approach Conclusion – Land Valuation
Following adjustments, the comparables indicated prices per acre of $0 to $0, with a median value of $0.
[pic]
All of the value indications have been considered, and in the final analysis, comparables , and , have been given most weight in arriving at our final reconciled per acre value of $300,000.
[pic]
Cost Analysis
The next step in the Cost Approach is to estimate the replacement cost of the buildings and site improvements. The replacement cost of the subject site and building improvements are based on Marshall & Swift, a nationally recognized cost service.
Soft Costs
Where appropriate, we have included the following soft costs:
Engineering
Engineering has been applied at 6.0% of building cost.
Architectural
Architectural has been applied at 5.0% of building and site costs.
Permits and Legal
Permitting and legal costs have been applied at $10,000.
Marketing & Leasing Commissions
It is often appropriate to add marketing expenses and leasing commissions necessary to bring an income producing property to stabilized occupancy to the cost schedule. In this case, these costs have been estimated at $20,000.
Developer's Profit
This factor reflects the profit necessary for the developer to undertake the management, responsibility and risks of construction associated with the subject property. Current valuation theory states that the four components that create value are land, labor, capital and coordination. Developer's profit as used in the Cost Approach reflects the coordination component of value. Typically, developer's profit runs 10% to 20%: we have computed developer's profit at 10.0% of construction costs.
Depreciation Analysis
Depreciation may be defined as any loss of value from any cause. There are three general areas of depreciation: physical deterioration, functional obsolescence and external obsolescence. Depreciation may be curable or incurable, the test being that money spent to cure the depreciation be gained in value. If the depreciation costs more to fix than will be gained in value, then the depreciation is considered incurable.
Physical Deterioration
This results from deterioration from aging and use. This type of depreciation may be curable or incurable.
Functional Obsolescence
This results from a lack of utility or desirability due to design or market perception of the improvements. This type of depreciation may be curable or incurable.
External Obsolescence
This is due to circumstances outside the property itself, such as industry, demographic and economic conditions or an undesirable proximate use. This type of depreciation is rarely curable.
Depreciation Accrued to the Subject
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Analysis
Cost Approach Conclusion
Based on the analysis detailed on the following page, as of January 21, 2013 we have reconciled to a cost approach value of:
$1,430,000
One Million Four Hundred Thirty Thousand Dollars
[pic]
Sales Comparison Approach
The Sales Comparison Approach is based on the premise that a buyer would pay no more for a specific property than the cost of obtaining a property with the same quality, utility, and perceived benefits of ownership. It is based on the principles of supply and demand, balance, substitution and externalities. The following steps describe the applied process of the Sales Comparison Approach.
• The market in which the subject property competes is investigated; comparable sales, contracts for sale and current offerings are reviewed.
• The most pertinent data is further analyzed and the quality of the transaction is determined.
• The most meaningful unit of value for the subject property is determined.
• Each comparable sale is analyzed and where appropriate, adjusted to equate with the subject property.
• The value indication of each comparable sale is analyzed and the data reconciled for a final indication of value via the Sales Comparison Approach.
Comparables
We have researched three comparables for this analysis; these are documented on the following pages followed by a location map and analysis grid. All sales have been researched through numerous sources, inspected and verified by a party to the transaction.
[pic]
[pic]
[pic]
[pic]
To insert more comp sheets:
By default, the Narrative1 template displays three comps for Land, Sales and Leases. To add more:
4. Create a new blank page in Word
5. Right-click and select Fields and Tables (or use the Narrative1 menu from Word’s main menu.)
6. Find the comps in the list, select it and click insert
Comparables Map
[pic]
Analysis Grid
The above sales have been analyzed and compared with the subject property. We have considered adjustments in the areas of:
|( Property Rights Sold |( Market Trends |
|( Financing |( Location |
|( Conditions of Sale |( Physical Characteristics |
On the following page is a sales comparison grid displaying the subject property, the comparables and the adjustments applied.
[pic]
Comparable Sale Adjustments
Property Rights
( Describe/Analyze(
Financing
( Describe/Analyze(
Conditions of Sale
( Describe/Analyze(
Economic Trends
( Describe/Analyze(
Location
( Describe/Analyze(
GBA
( Describe/Analyze(
Year Built
( Describe/Analyze(
Acres
( Describe/Analyze(
Road Frontage
( Describe/Analyze(
Sales Comparison Approach Conclusion
Following adjustments, the comparables indicated prices per square foot of $0.00 to $0.00, with a median value of $0.00.
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All of the value indications have been considered, and in the final analysis, comparables , and , have been given most weight in arriving at our final reconciled per square foot value of $82.00.
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Income Approach
The Income Approach to value is based on the present worth of the future rights to income. This type of analysis considers the property from an investor's point of view, the basic premise being that the amount and quality of the income stream are the basis for value of the property.
Direct Capitalization Analysis
The steps involved in capitalizing the subject's net operating income are as follows:
• Develop the subject's Potential Gross Income (PGI) through analysis of the subject’s actual historic income and an analysis of competitive current market income rates.
• Estimate and deduct vacancy and collection losses to develop the Effective Gross Income (EGI).
• Develop and subtract operating expenses to derive the Net Operating Income (NOI).
• Develop the appropriate capitalization rate (Ro).
• Divide the net operating income by the capitalization rate for an estimate of value through the income approach.
Potential Gross Income (PGI)
Current Income
The table below summarizes the subject’s current and historic income.
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Space Types & Occupancy
The following table details the space types we have defined for the subject, and current occupancy.
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< Comments: market rent estimates are made by space type>
Lease Structure
The predominant lease structure in the subject property is
Rent Roll
The following rent roll details the current occupancy and rent status on a unit by unit basis.
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Recent Leases
The following table details leases signed at the subject after January 1, 2007.
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< Analysis, Notes, Comments here. Analyze/discuss how recent leases compare with longer term history displayed in the rent roll, renewals, recent turn-over, etc. >
Overall Rent Ranges
The following table detail overall rent ranges at the subject, organized by space type.
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< Analysis, Notes, Comments here. >
Major Tenants
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< Analysis, Notes, Comments here. >
Lease Expiration Schedule
The lease expiration schedule provides insight to vacancy exposure and lease-up expenses.
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< Analysis, Notes, Comments here. >
Market Rent
Market Rent Comparables
We have researched three comparables for this analysis; these are documented on the following pages followed by a location map and analysis grid. All sales have been researched through numerous sources, inspected and verified by a party to the transaction.
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Comparables Map
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Analysis Grid
The above rentals have been analyzed and compared with the subject property. We have considered adjustments in the areas of:
|( Lease Terms |( Economic Trends (time) |
|( Conditions of Lease |( Location |
|( Other |( Physical Characteristics |
On the following page is a rental comparison grid displaying the subject property, the comparables and the adjustments applied.
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Comparable Rent Adjustments
Conditions of Lease
( Describe/Analyze(
Economic Trends
( Describe/Analyze(
Type of Lease/Expense Structure
( Describe/Analyze(
Location
( Describe/Analyze(
Condition
( Describe/Analyze(
--
( Describe/Analyze(
--
( Describe/Analyze(
Market Rent Reconciliation
Following adjustments, the comparables indicated a market rent of $0.00 to $0.00, with a median value of $0.00.
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Based on the above analysis, we have reconciled to a market rent of $12.50, as of January 21, 2013, for the subject .
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Summary of Market Rent
The table below summarizes the market rent estimates for the subject, organized by space type.
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Potential Gross Income Summary
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Other Income
( Describe/Analyze(Other Income is projected at $2,700.
Vacancy and Collection Loss
Based on a review of market conditions and the subject’s operating history we have projected vacancy and collection loss at 10.00%.
Effective Gross Income
|Potential Gross Income |$158,800 |
|Other Income |$2,700 |
|Less: Vacancy & Collection Loss |10.00% |
|Effective Gross Income |$142,920 |
Expenses
The table below details the subject’s current expenses and recent history.
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Expenses Analysis and Projection
The subject expense profile has been compared with ten comparables, detailed in the following table.
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Taxes
This expense category includes all local, county, and state property tax levies,
including special assessments.
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( Describe/Analyze(
Insurance
Coverage for loss or damage to the property caused by the perils of fire, lightning, extended coverage perils, vandalism and malicious mischief, and additional perils.
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( Describe/Analyze(
Management
An expense item representing the sum paid for management services; a variable operating expense. Management services may be contracted for or provided by the property owner. Management expenses may include supervision, on-site offices or apartments for resident managers, telephone service, clerical help, legal or accounting services, printing and postage, and advertising. Management fees may occasionally be included among recoverable operating expenses.
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( Describe/Analyze(
Advertising and Marketing
The items in this category include professional fees and other general administrative expenses, such as rent of offices and general expenses and the services needed to operate the property.
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( Describe/Analyze(
Total Utilities
Utilities expenses typically include electric, gas, water, sewer, and trash removal.
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( Describe/Analyze(
Repairs and Maintenance
All expenses incurred for the general repairs and maintenance of the building including common areas and general upkeep. Repairs and maintenance expense includes elevator, HVAC, electrical and plumbing, structural/roof, and other repairs and maintenance expense items.
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( Describe/Analyze(
CAM
Common area maintenance (CAM) is the expense of operating and maintaining common areas of the property. The common area is the total area within a property that is not designed for rental, but is available for common use by all owners, tenants, or their invitees, e.g., parking and its appurtenances, malls, sidewalks, landscaped areas, recreation areas, public toilets, truck and service facilities.
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( Describe/Analyze(
Painting and Decorating
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( Describe/Analyze(
Cleaning and Janitorial
The expense for building cleaning and janitorial services including all of the required items for both daytime and night-time cleaning and janitorial service for tenant spaces, public areas, atriums, elevators, restrooms, windows, etc.
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( Describe/Analyze(
Payroll
The payroll expenses for all employees involved in the on-going operation of the property, but whose salaries and wages are not included in other expense categories.
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( Describe/Analyze(
Security
Expenses related to the security of the Lessees and the Property. This expense item includes payroll, contract services and other security expenses not covered elsewhere. This item also includes the expense of maintenance of security systems such as alarms and closed circuit television (CCTV), and ordinary supplies necessary to operate a security program such as batteries, control forms, access cards, security uniforms, etc.
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( Describe/Analyze(
Roads and Grounds
The cost of maintaining the grounds, roads and parking areas of the property.
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( Describe/Analyze(
Other Expenses
Any other expenses incurred in the operation of the property not specifically covered elsewhere.
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( Describe/Analyze(
Reserves
An allowance that provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced periodically during the building’s useful or economic life. Reserves are also called reserve(s) for replacement or replacement allowance. These components may include one or more of the following: roof covering; carpeting; kitchen, bath, and laundry equipment; compressors, elevators, and boilers; specific structural items and equipment that have limited economic life expectancies; interior improvements to tenant space that are made periodically by the landlord, usually at lease renewal; sidewalks, driveways; parking areas; and exterior painting.
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( Describe/Analyze(
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Net Operating Income
|Effective Gross Income |$133,890 |
|Less: Less Expenses |$45,389 |
|Add: Expense Reimbursements |$0 |
|Net Operating Income |$88,501 |
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Capitalization Rate
The capitalization rate is the factor that converts the stabilized net operating income (NOI) to a present value. It is the ratio of net income to value or sale price.
NOI ÷ Sale Price = Capitalization Rate
For example, if a property sells for $500,000, and has a stabilized NOI of $50,000, the indicated capitalization rate is 10%.
Market Extracted Rates
The table below details capitalization rates extracted from the market.
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Band of Investment
This technique utilizes lender and real estate investor investment criteria to develop, or synthesize a capitalization rate. There are four key inputs necessary for this method:
1. The loan-to-value ratio (M)
2. The mortgage interest rate (i)
3. The loan term (n)
4. The equity cap rate or equity dividend rate (RE)
The mortgage variables are used to build the mortgage constant (RM), which is the total amount of the payments made in one year, expressed as a percentage of the original loan amount.
Payments x 12 / Original Loan Amount = Mortgage Constant (RM)
The equity cap rate is the annual return to the investor, expressed as a percent of the original amount invested. The annual return to the investor is also known as the equity dividend rate; it is the profit remaining after debt service and all other expenses.
After Debt Service Profit / Equity Investment = Equity Cap Rate (RE)
Note that the equity cap rate is not the same (usually, that is) as the equity yield rate. The equity yield rate reflects the total return to the investor over the life of the investment. Factors such as appreciation and mortgage pay down affect and usually increase this return to a point higher than the equity dividend rate. In markets where substantial appreciation is expected, investors will often accept a low or even negative equity dividend rate, anticipating a compensating payoff when the property is eventually sold. In markets where little appreciation is expected, much more weight is given to the annual equity dividend.
Formula:
|RM x M |= rate |
|RE x (1-M) |= rate |
| |= Cap Rate (Ro) |
Debt Coverage Ratio Analysis
This technique develops a capitalization rate based on typical mortgage terms. There are four variables necessary for this method:
1. The loan-to-value ratio (M)
2. The mortgage interest rate (i)
3. The loan term (n)
4. The debt coverage ratio (DCR)
Items 1 through 3 are discussed above under the Band of Investment section. In this method it is also used to develop the mortgage constant (RM). The debt coverage ratio is the factor by which income exceeds debt on an annual basis.
Formula:
Debt Coverage Ratio x Loan to Value Ratio x Mortgage Constant = Ro
or: DCR x M x RM = Ro
We have researched mortgage rates and terms typical for the subject within the market area. The table below details the Band of Investment and Debt Coverage Ratio Analyses calculations.
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Survey Data
Discuss investor or published survey data
Capitalization Rate Conclusion
7.75%
Capitalization to Value
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Direct Capitalization Analysis Conclusion
Based on the above analysis detailed above, as of January 21, 2013 we have reconciled to a direct capitalization approach value of:
$1,090,000
One Million Ninety Thousand Dollars
Effective Gross Income Multiplier Analysis (EGIM)
The EGIM is the ratio of effective gross income to sale price (Price ( EGI = EGIM).
• Develop the subject's Potential Gross Income (PGI) through analysis of the subject’s actual historic income and an analysis of competitive current market income rates.
• Estimate and deduct vacancy and collection losses to develop the Effective Gross Income (EGI).
• Develop the appropriate EGIM through analysis of comparable sales.
• Multiply the Effective Gross Income by the EGIM for an estimate of value.
Effective Gross Income
Effective Gross Income has been developed previously in this appraisal at $129,300.
The following table summarizes the comparable sales, multipliers and expense ratios.
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The range of multipliers is 7.84 to 8.38 with an average of 8.13.
( Describe/Analyze(
Therefore, we have reconciled to a multiplier of 8.15.
EGIM Analysis Conclusion
|EGI |$129,300 |
|EGIM |x 8.15 |
|Indicated Value |$1,053,795 |
|Rounded |$1,055,000 |
One Million Fifty Five Thousand Dollars
Net Income Multiplier Analysis (NIM)
The NIM is the ratio of effective net operating income to sale price (Price ( NOI = NIM).
Net Operating Income
The Net Operating Income has been developed previously in this appraisal at $84,370.
The following table summarizes the comparable sales, NOI per square foot and multipliers.
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The range of multipliers is 12.41 to 12.45 with an average of 12.43.
( Describe/Analyze(
Therefore, we have reconciled to a multiplier of 12.45.
NIM Analysis Conclusion
|NOI |$84,370 |
|NIM |x 12.45 |
|Indicated Value |$1,050,407 |
|Rounded |$1,050,000 |
One Million Fifty Thousand Dollars
Stabilization Calculations
When a property has a below market income stream due to high vacancy and/or below market rents, an adjustment to value is often necessary for lost income over the lease-up period, leasing commissions associated with lease-up and perhaps tenant fit-up and additional operating expenses associated with the vacant space over the lease-up period.
The table below details the stabilization calculations for the subject.
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Actual PGI for Vacant Space: This figure is from the Rent Roll table and is the dollar amount of the subject’s current vacancy.
Stabilized PGI for Vacant Space: This figure is calculated from the Rent Roll table. It is the dollar amount of vacancy at stabilized occupancy, calculated by multiplying the PGI at market rent by the stabilized vacancy and collection loss rate. In this case, $142,000 x 10.00% = $14,200.
Adjusted EGI Rent Loss: These lines reflect the anticipated change percentage and dollar for income trends over the stabilization period
% Leased: The projected percentage of space absorbed by the market for the given year. The percentage is measured against the original vacancy, not remaining vacancy.
$ Leased: The dollar amount for the space absorbed.
Annualized Rent Ross for $ Leased at 50%: This line assumes that absorption will take place over the course of the year and that on average, only 50% of the rent will be captured. In effect, the calculation assumes space is occupied at the mid-point of the year.
$ Vacant: This is the dollar amount of remaining rent loss and is carried forward to the next year.
Leasing Commissions: The leasing commissions are calculated based on the inputs at the bottom of the table. There are two inputs: the rate and the number of years to apply the commission. These factors are applied to the dollar value of the leased space for the year (the "$ Leased" row). Note the total amount is applied in year the space is leased.
Tenant Improvements: Expenses related to tenant fit-up that are typically paid by the owner.
Other:
Discount Rate: The discount rate is used to convert the anticipated future cash flows to a present value. It reflects the risks and timing of the cash flows and typically consists of a blend of equity and debt position requirements.
The discount rate is used to convert the anticipated future cash flows to a present value. It reflects the risks and timing of the cash flows and can consist of equity or a blend of equity and debt position requirements.
In this case, based on the risk characteristics of the subject’s projected stabilization we have applied a discount rate of 12.0%.
Or, for a more detailed development of the discount rate, delete the paragraph above and modify this text:
The following formula is a method for developing the discount rate using a blend of debt and equity requirements.
Debt X LTV
Equity x 1-LTV
Equals = Blended Rate
We have researched the local market for debt and equity terms and have applied the following inputs in the discount rate model:
Debt @ 8.0% x 30% = 2.4%
Equity @ 18.0% x 70% = 12.6%
Equals Blended Rate = 15.0%
Additionally, we have also reviewed published surveys from and >. These surveys report the following:
>
Therefore, based on these indicators, we have applied the discount rate at 12.0%% to convert future cash flows to a present value.
Present Value, Rounded: Based on the above inputs, the indicated stabilization adjustment, after rounding, is $0.
Final Reconciliation
The process of reconciliation involves the analysis of each approach to value. The quality of data applied, the significance of each approach as it relates to market behavior and defensibility of each approach are considered and weighed. Finally, each is considered separately and comparatively with each other.
Value Indications
|Land Value: |$600,000 |
|Cost Approach: |$1,430,000 |
|Sales Comparison Approach: |$1,025,000 |
|Income Approach: | |
|Direct Capitalization |$1,090,000 |
|EGIM Analysis |$1,055,000 |
|NIM Analysis |$1,050,000 |
Cost Approach
(Discuss data quality, quantity and relevance of approach(
Sales Comparison Approach
(Discuss data quality, quantity and relevance of approach(
Income Approach – Direct Capitalization
(Discuss data quality, quantity and relevance of approach(
Income Approach – EGIM Analysis
(Discuss data quality, quantity and relevance of approach(
Income Approach – NIM Analysis
(Discuss data quality, quantity and relevance of approach(
Value Conclusion
Based on the data and analyses developed in this appraisal, we have reconciled to the following value conclusion(s), as of January 21, 2013, subject to the Limiting Conditions and Assumptions of this appraisal.
|Reconciled Value(s): |Premise: As Is |
| |Interest: Fee Simple |
| |Value Conclusion: $1,050,000 |
| |One Million Fifty Thousand Dollars |
| |Premise: As Complete |
| |Interest: Fee Simple |
| |Value Conclusion: $1,050,000 |
| |One Million Fifty Thousand Dollars |
| | |
| |Premise: As Stabilized |
| |Interest: Fee Simple |
| |Value Conclusion: $1,050,000 |
| |One Million Fifty Thousand Dollars |
OR
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Certification Statement
We certify that, to the best of our knowledge and belief:
← The statements of fact contained in this report are true and correct.
← The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions and conclusions.
← We have no present or prospective future interest in the property that is the subject of this report, and have no personal interest with respect to the parties involved.
← We have no bias with respect to the property that is the subject of this report, or to the parties involved with this assignment.
← Our engagement in this assignment was not contingent upon developing or reporting predetermined results.
← Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.
← Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP).
← No one provided significant real property appraisal assistance to the person(s) signing this certification.
← We certify sufficient competence to appraise this property through education and experience, in addition to the internal resources of the appraisal firm.
← The appraiser has not performed any prior services regarding the subject within the previous three years of the appraisal date.
← Tom Armstrong has made an inspection of the subject property.
← -- -- has made an inspection of the subject property.
See N1 Autotext Misc category for Appraisal Institute certification statements
| | |
| | |
|NH-137 |----- |
Addenda
Qualifications Placeholder Page
Glossary
This glossary contains the definitions of common words and phrases, used throughout the appraisal industry, as applied within this document. Please refer to the publications listed in the Works Cited section below for more information.
Works Cited:
▪ Appraisal Institute. The Appraisal of Real Estate. 13th ed. Chicago: Appraisal Institute, 2008. Print.
▪ Appraisal Institute. The Dictionary of Real Estate Appraisal. 5th ed. 2010. Print.
Band of Investment
A technique in which the capitalization rates attributable to components of a capital investment are weighted and combined to derive a weighted-average rate attributable to the total investment. (Dictionary, 5th Edition)
Common Area
1. The total area within a property that is not designed for sale or rental but is available for common use by all owners, tenants, or their invitees, e.g., parking and its appurtenances, malls, sidewalks, landscaped areas, recreation areas, public toilets, truck and service facilities.
2. In a shopping center, the walkways and areas onto which the stores face and which conduct the flow of customer traffic. (ICSC) (Dictionary, 5th Edition)
Common Area Maintenance (CAM)
1. The expense of operating and maintaining common areas; may or may not include management charges and usually does not include capital expenditures on tenant improvements or other improvements to the property.
• CAM can be a line-item expense for a group of items that can include maintenance of the parking lot and landscaped areas and sometimes the exterior walls of the buildings.
• CAM can refer to all operating expenses.
• CAM can refer to the reimbursement by the tenant to the landlord for all expenses reimbursable under the lease. Sometimes reimbursements have what is called an administrative
load. An example would be a 15% addition to total operating expenses, which are then prorated among tenants. The administrative load, also called an administrative and marketing fee, can be a substitute for or an addition to a management fee.
2. The amount of money charged to tenants for their shares of maintaining a center’s common area. The charge that a tenant pays for shared services and facilities such as electricity, security, and maintenance of parking lots. The area maintained in common by all tenants, such as parking lots and common passages. The area is often defined in the lease and may or may not include all physical area to be paid for by all tenants. Items charged to common area maintenance may include cleaning services, parking lot sweeping and maintenances, snow removal, security, and upkeep. (ICSC) (Dictionary, 5th Edition)
Debt Coverage Ratio (DCR)
The ratio of net operating income to annual debt service (DCR = NOI/Im), which measures the relative ability of a property to meet its debt service out of net operating income; also called debt service coverage ratio (DSCR). A larger DCR indicates a greater ability for a property to withstand a downturn in revenue, providing an improved safety margin for a lender. (Dictionary, 5th Edition)
Discount Rate
A yield rate used to convert future payments or receipts into present value; usually considered to be a synonym for yield rate. (Dictionary, 5th Edition)
Effective Age
The age of property that is based on the amount of observed deterioration and obsolescence it has sustained, which may be different from its chronological age. (Dictionary, 5th Edition)
Effective Date
1. The date on which the analyses, opinion, and advice in an appraisal, review, or consulting service apply.
2. In a lease document, the date upon which the lease goes into effect. (Dictionary, 5th Edition)
Exposure Time
1. The time a property remains on the market.
2. The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based on an analysis of past events assuming a competitive and open market. (Dictionary, 5th Edition)
External Obsolescence
An element of depreciation; a diminution in value caused by negative externalities and generally incurable on the part of the owner, landlord, tenant. (Dictionary, 5th Edition)
Extraordinary Assumption
An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions. Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property; or about conditions external to the property such as market conditions or trends; or about the integrity of data used in an analysis. (Dictionary, 5th Edition)
An assignment-specific assumption as of the effective date regarding uncertain information used in an analysis which, if found to be false, could alter the appraiser’s opinion or conclusions.
(USPAP, 2020-2021 ed.)
Fee Simple Estate
Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. (Dictionary, 5th Edition)
Functional Obsolescence
The impairment of functional capacity of a property according to market tastes and standards. (Dictionary, 5th Edition)
Functional Utility
The ability of a property or building to be useful and o perform the function for which it is intended according to current market tastes and standards; the efficiency of a building’s use in terms of architectural style, design and layout, traffic patterns, and the size and type of rooms. (The Appraisal of Real Estate, 13th Edition)
Gross Building Area (GBA)
Total floor area of a building, excluding unenclosed areas, measured from the exterior of the walls of the above-grade area. This includes mezzanines and basements if and when typically included in the region. (Dictionary, 5th Edition)
Gross Leasable Area (GLA)
Total floor area designed for the occupancy and exclusive use of tenants, including basements and mezzanines; measured from the center of joint partitioning to the outside wall surfaces. (Dictionary, 5th Edition)
Highest & Best Use
The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity. Alternatively, the probable use of land or improved property—specific with respect to the user and timing of the use—that is adequately supported and results in the highest present value. (Dictionary, 5th Edition)
Highest and Best Use of Land or a Site as Though Vacant
Among all reasonable, alternative uses, the use that yields the highest present land value, after payments are made for labor, capital, and coordination. The use of a property based on the assumption that the parcel of land is vacant or can be made vacant by demolishing any improvements. (Dictionary, 5th Edition)
Highest and Best Use of Property as Improved
The use that should be made of a property as it exists. An existing improvement should be renovated or retained as is so long as it continues to contribute to the total market value of the property, or until the return from a new improvement would more than offset the cost of demolishing the existing building and constructing a new one. (Dictionary, 5th Edition)
Hypothetical Condition
That which is contrary to what exists but is supposed for the purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. (Dictionary, 5th Edition)
Leased Fee Interest
A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship (i.e., a lease). (Dictionary, 5th Edition)
Market Area
The area associated with a subject property that contains its direct competition. (Dictionary, 5th Edition)
Market Rent
The most probably rent that a property should bring is a competitive and open market reflecting all conditions and restrictions of the lease agreement, including permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (TIs). (Dictionary, 5th Edition)
Market Value
The major focus of most real property appraisal assignments. Both economic and legal definitions of market value have been developed and refined.
1. The most widely accepted components of market value are incorporated in the following definition: The most probable price that the specified property interest should sell for in a competitive market after a reasonable exposure time, as of a specified date, in cash, or in terms equivalent to cash, under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, for self-interest, and assuming that neither is under duress.
2. Market value is described in the Uniform Standards of Professional Appraisal Practice (USPAP) as follows: A type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under specific conditions set forth in the value definition that is identified by the appraiser as applicable in an appraisal. (USPAP, 2020-2021 ed.) USPAP also requires that certain items be included in every appraisal report. Among these items, the following are directly related to the definition of market value:
• Identification of the specific property rights to be appraised.
• Statement of the effective date of the value opinion.
• Specification as to whether cash, terms equivalent to cash, or other precisely described financing terms are assumed as the basis of the appraisal.
• If the appraisal is conditioned upon financing or other terms, specification as to whether the financing or terms are at, below, or above market interest rates and/or contain unusual conditions or incentives. The terms of above—or below—market interest rates and/or other special incentives must be clearly set forth; their contribution to, or negative influence on, value must be described and estimated; and the market data supporting the opinion of value must be described and explained.
3. The following definition of market value is used by agencies that regulate federally insured financial institutions in the United States: The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and the seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
• Buyer and seller are typically motivated;
• Both parties are well informed or well advised, and acting in what they consider their best interests;
• A reasonable time is allowed for exposure in the open market;
• Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
• The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (12 C.F.R. Part 34.42(g); 55 Federal Register 34696, August 24, 1990, as amended at 57 Federal Register 12202, April 9, 1992; 59 Federal Register 29499, June 7, 1994)
1. The International Valuation Standards Council defines market value for the purpose of international standards as follows: The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion. (International Valuation Standards, 8th ed., 2007)
2. Market value is the amount in cash, or on terms reasonably equivalent to cash, for which in all probability the property would have sold on the effective date of the appraisal, after a reasonable exposure of time on the open competitive market, from a willing and reasonably knowledgeable seller to a willing and reasonably knowledgeable buyer, with neither acting under any compulsion to buy or sell, giving due consideration to all available economic uses of the property at the time of the appraisal. (Uniform Standards for Federal Land Acquisitions) (Dictionary, 5th Edition)
Marketing Time
An opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value level during the period immediately after the effective date of the appraisal. Marketing time differs from exposure time, which is always presumed to precede the effective date of an appraisal. (Advisory Opinion 7 of the Standards Board of The Appraisal Foundation and Statement on Appraisal Standards No. 6, “Reasonable Exposure Time in Real Property and Personal Property Market Value Opinions” address the determination of reasonable exposure and marketing time). (Dictionary, 5th Edition)
Net Operating Income (NOI)
The actual or anticipated net income that remains after all operating expenses are deducted from effective gross income but before mortgage debt service and book depreciation are deducted. (Dictionary, 5th Edition)
Obsolescence
One cause of depreciation; an impairment of desirability and usefulness caused by new inventions, changes in design, improved processes for production, or external factors that make a property less desirable and valuable for a continued use; may be either functional or external. (Dictionary, 5th Edition)
Parking Ratio
A ratio of parking area or parking spaces to an economic or physical unit of comparison. Minimum required parking ratios of various land uses are often stated in zoning ordinances. (Dictionary, 5th Edition)
Rentable Area
For office buildings, the tenant’s pro rata portion of the entire office floor, excluding elements of the building that penetrate through the floor to the areas below. The rentable area of a floor is computed by measuring to the inside finished surface of the dominant portion of the permanent building walls, excluding any major vertical penetrations of the floor. Alternatively, the amount of space on which the rent is based; calculated according to local practice. (Dictionary, 5th Edition)
Replacement Cost
The estimated cost to construct, at current prices as of the effective appraisal date, a substitute for the building being appraised, using modern materials and current standards, design, and layout. (Dictionary, 5th Edition)
Scope of Work
The type and extent of research and analyses in an assignment. (Dictionary, 5th Edition)
Stabilized Occupancy
An expression of the expected occupancy of a property in its particular market considering current and forecasted supply and demand, assuming it is priced at market rent. (Dictionary, 5th Edition)
Tenant Improvements (TIs)
1. Fixed improvements to the land or structures installed and paid for use by a lessee.
1. The original installation of finished tenant space in a construction project; subject to periodic change for succeeding tenants. (Dictionary, 5th Edition)
Vacancy and Collection Loss
A deduction from potential gross income (PGI) made to reflect income reductions due to vacancies, tenant turnover, and non-payment of rent; also called vacancy and credit loss or vacancy and contingency loss. Often vacancy and collection loss is expressed as a percentage of potential gross income and should reflect the competitive market. Its treatment can differ according to the interest being appraised, property type, capitalization method, and whether the property is at stabilized occupancy. (Dictionary, 5th Edition)
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