Real Estate Appraisal / Finance 322 Spring, 2011

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1 Instructor: Office: / Spring, 2011 Rich Hall Finance Dept. / 134 Rehn Hall 6:30 PM - 7:00 PM Tuesday or any time by appointment. Rehn Hall Room 134 (Finance Office) hallr@siu.edu / (W) / (H) Text: Betts & Ely, Basic, 7th Ed., Web-Site: "Class Pak": Exams & Quizzes: Overheads & various handouts available at our website A mid-term exam and final are required: (100 pts. each) Exams will consist of multiple choice questions & four or five essay questions. You will be allowed to use your book, notes and any other material. Exams may be comprehensive. Review sheets will be provided. Two un-announced quizzes. (Bonus: 10 pts. each) Assignments: Grade: Five projects & two appraisals. Extra credit available. Projects: (1) What's Good & Bad? (2) Highest & Best Use (3) Market Feasibility. (4) Location, Location, Location. (5) What's it really worth? (20 pts. each) Appraisal One : Owner-Occupied Residential Appraisal (100 pts.) Appraisal Two: Income Appraisal (100 pts.) Extra Credit: Tax Appraisal, Environmental Assessment (Bonus: 15 pts.each) All assignments MUST be turned in on due dates. Your grade will be determined by adding exams, quizzes & projects Any extra credit earned will be added into the total. Scale: (500 Ttl. Pts.) A = 450 & up B = C = D = F = 299 & below Course Description & Objectives: Establish the purpose and process of creating real estate appraisals. Be able to creatively & practically apply real property right concepts and market value principles to the appraisal process. Be able to identify and locate the necessary data to prepare well written and well documented appraisals in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP).

2 Course Outline I. Introduction 1 & 18 Review of Principles 2 Appraisal Research Sources Handout & Court House Highest & Best Use 6.2 II. The Appraisal Process Steps of Appraisal Process 3 Appraisal Reports 16 Economics & Value 3 & 5 Real Estate Markets, Communities, & Neighborhoods 4 Residential Appraisal: Sales Comparison & Cost Approaches 8 & 11 III. Ad Valorem Appraisals Illinois Residential Tax Assessments Handouts Exam One / March 1st IV. Residential Appraisal Property Inspection: The Site & Improvements 6 & 7 Sales Comparison Approach 8 & 9 Cost Approach 10, 11, 12 URAR: Subject, Neighborhood, Site & Improvements 6, 7, 8 URAR: Cost. Sales Comps & Reconciliation 9 Residential Property Appraisal - April 12th V. Income Appraisals The Income Approach 13 Income Capitalization 14 Income Property Appraisal - May 3rd VI. Environmental Issues & Assessments Transaction Screens/Phase I Assessments Handouts VII. Real Estate Investments Final Exam & Extra Credit Projects - May 10th

3 SIUC Emergency Procedures Southern Illinois University Carbondale is committed to providing a safe and healthy environment for study and work. Because some health and safety circumstances are beyond our control, we ask that you become familiar with the SIUC Emergency Response Plan and Building Emergency Response Team (BERT) program. Emergency response information is available on posters in buildings on campus, on the BERT s website at the Department of Public Safety s website (disaster drop down) and in the Emergency Response Guidelines pamphlet. Know how to respond to each type of emergency. (Note: The 'B.E.R.T' website can be accessed only from on-campus internet locations.) Instructors will provide guidance and direction to students in the classroom in the event of an emergency affecting your location. It is important that you follow these instructions and stay with your instructor during an evacuation or sheltering emergency. The Building Emergency Response Team will provide assistance to your instructor in evacuating the building or sheltering within the facility.

4 Projects Five various circumstances involving common real estate valuation circumstances for your intrepretation and opinion. 1. What's good & bad about a residential parcel of real estate of your choice? Due: 1/25 and 5/3 2. Highest & Best Use. Identify a parcel of real estate not being used to it's 'highest & best use' and indicate how it should be used. Due: 2/8 3. Market Feasibility. A builder asks for your assistance in determining the characteristics of a proposed new house he wishes to build. Due: 2/22 4. Location... Location. Can a commercial location be 'too visible'. What's good & bad about the commercial location provided. Due: 4/5 5. An income property is listed for $90,000. Based on a proper income analysis, is it worth $90,000? Due: 5/3 Evaluation Criteria 1. Does the student apply & convey an understanding of appraisal concepts in their solutions? 2. Does the student apply creativity to the solution of the real estate problem? 3. Are the reports clear, concise & complete in their presentation?

5 Owner-Occupied Residential Appraisal Establish the prevailing market value of a single family, owner occupied, residential parcel of real property. Properly report your findings in the "Summary Report" form consistent with USPAP requirements. Locate a subject property that can realistically be assumed to be occupied by a single family. By following the appraisal process, determine your opinion of it's market value. Correctly identify and describe the subject property and it's marketplace. Apply all relevant valuation approaches and properly make valuation conclusions for each valuation approach. Document through marketplace research, local real estate costs to reproduce and at least three comparable properties. Make adjustments to reflect differences to the subject. Reconcile & report your conclusions. You may use computer software programs.

6 Income Appraisal Establish the prevailing market value of a single family, non-owner occupied, income residential parcel of real property. Properly report your findings in the "Summary Report" form consistant with USPAP requirements. Locate a subject property that can realistically be assumed to be occupied by a single family and would pay rent to the property owner. By following the appraisal process, determine your opinion of it's market value. Correctly identify and describe the subject property and it's marketplace. Provide detailed revenue and expense data of the subject property so as to be able to determine net operating income consistent with appraisal methodologies. Apply all relevant valuation approaches and properly make valuation conclusions for each valuation approach. Document through marketplace research, local real estate costs to reproduce and at least three comparable properties. Make adjustments to reflect differences to the subject. Identify appropriate yields and capitalization rates that are consistent with local real estate investor requirements. Reconcile & report your conclusions. You may use computer software programs.

7 Extra Credit Projects Complete one (or both) of the following for a maximum of 15 points each to be added to your total points. I. Property Tax Re-assessment / Appeal Briefly summarize the background of Illinois property taxation and the necessary steps to provide a homeowner with the knowledge to contest their property taxes. Include in your discussion all appropriate forms to be used and a brief explanation of the possible homeowner exemptions that available to Illinois property owners. To receive complete credit, a subject property of your choice must be reviewed for possible tax reductions. II. Environmental Assessment Transaction Screen Locate a property with recognized environmental conditions (REC s), inspect the property, interview the occupant, and if possible, interview the owner. Complete the transaction screen questionnaire and render your opinions as to whether you believe existing environmental conditions warrant a further "Phase I" investigation.

8 Assessment Instruments & Evaluation Criteria Projects 1-5: Students are assigned various circumstances involving common real estate valuation circumstances for their intrepretation and opinion. Evaluation Criteria: 1. Does the student apply & convey an understanding of appraisal concepts in their solutions? 2. Does the student apply creativity to the solution of the real estate problem? 3. Are the reports clear & concise in their presentation? Owner-Occupied Residential Appraisal: Students are assigned the task of determining the market value of a single family residence of their choice utilizing the Uniform Residential Appraisal Report (URAR) format. Students will be required to perform the necessary research and field work to provide documentation for both the comparable sales and cost approaches. Evaluation Criteria: 1. Is the appraisal well written and does it contain the standard components /parts of a URAR residential appraisal? 2. Was the subject property and it s market properly identified and described? 3. Were legitimate comparable properties (3) identified and correct adjustments made to reflect differences to the subject? 4. Was the cost approach properly and reasonably applied accounting for all three forms of obsolescence? 5. Were the value judgments properly reconciled? Income Appraisal: Students are assigned the task of determining the market value of an income producing single family residence using the narrative appraisal report format. Students will be required to perform the necessary research, field and investment analysis to provide documentation for all three appraisal approaches the comparable sales, cost and income approaches. Evaluation Criteria: 1. Is the appraisal well written and does it contain the standard components /parts of a narrative income appraisal? 2. Was the subject property and it s market properly identified and described? 3. Were legitimate comparable properties (3) identified and correct adjustments made to reflect differences to the subject?

9 Income Appraisal: (continued) 4. Was the cost approach properly and reasonably applied accounting for all three forms of obsolescence? 5. Was a proper yield or direct capitalization income analysis approach utilized? With proper documentation? 6. Were the value judgments properly reconciled? Exams: Students are given two exams & two ten-point quizzes to assess progress and to solidify appraisal concepts. Each exam consists of four or five essay questions and twenty (+) multiple choice questions. Evaluation Criteria: Can the student successfully respond to the questions & concepts? What s an appraisal? Who would use them? What are the standard components /parts of an appraisal? Real Estate principles what s important for an appraiser? The appraisal process: Residential appraisal techniques Market Comparison the process of finding and making adjustments to comparable properties. Cost Approach the process of determining current costs less depreciation. The appraisal process: Commercial appraisal techniques Income analysis income & expense analysis Capitalization rates methods Yield vs. Direct Capitalization Real estate entrepreneurship what are the opportunities? How does real property increase in value? The potential increase in the value of a parcel of real property is directly related to the potential and/or actual variation of its economic use. Can you explain with examples? How Safe is Real Estate? Where does its yield come from? Is it a liquid investment? What are the chances for capital appreciation when investing in real estate? How does real estate do in times of high & low inflation? Are there tax consequences to investing in real estate? Why do property values differ? How might your client and/or you benefit from this knowledge?