concepts and techniques

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1 concepts and techniques S a m p l e Timed Outline Topic Area DAY 1 Reference(s) Learning Objective The student will learn Teaching Method Time Segment (Minutes) Chapter 1: Introduction to Sales Comparison and Income Methodologies Relevant Valuation Fundamentals Substitution Anticipation Change Physical (Environmental) Forces Economic Forces Governmental Forces Social Forces Pgs PPT How the basic principles of substitution and anticipation are reflected in the sales comparison and income approaches. That the broad forces of value are driven by the elements of change and are visible in many ways while performing analysis for the sales comparison and income approaches. Lecture 0-15 Balance Seller s Markets Buyer s Markets Conformity Progression Regression How the principle of balance interacts with conditions in the market place. That conformity is a consideration of both the sales comparison and income approaches. That conformity can result in progression or regression, which ultimately can have influence on market value Competition Contribution Law of Diminishing Returns Law of Increasing Returns How competing properties tend to set the upper limit of what another property in the market can be worth. Contributory value of a property s characteristics is not directly related to cost

2 concepts and techniques USPAP Standard 1 Real Property Appraisal Development Standards Rules Pgs PPT The appraiser s general obligations in a real property appraisal assignment. General requirements of Standards Rules and how they align as a checklist for the appraisal process. Lecture Problem Identification Identify the Client and Any Other Intended Users Identify the Intended Use Identify the Type and Definition of Value Identify the Date of the Value Estimate Identify the Relevant Characteristics of the Property Identify Assignment Conditions Pgs PPT How proper problem identification leads the appraiser to a scope of work decision. That the information learned by the appraiser during problem identification assists the appraiser in determining the applicable valuation methods to be included in the scope of work. Lecture Scope of Work Pg PPT. 42 To define scope of work, and recognize when the scope of work determined appropriate in an assignment is sufficient. That the scope of work is an ongoing process in an assignment and could change based on information and conditions learned by the appraiser during the assignment. Lecture Data Collection and Analysis Data Collection General Data Specific Data Data Organization Data Analysis Market Analysis Highest and Best Use Analysis Application of the Approaches to Value Reconciliation Pgs PPT The steps, elements, and sources of various types of data appropriate in an appraisal assignment. How various types of data are organized and analyzed prior to the development of the valuation approach(es). Lecture Minute Break Application Case Study Pgs PPT Through case, to correctly interpret the elements of problem identification leading to the scope of work decision. Determine the scope of work appropriate in the described assignment. Workgroup/ discussion

3 Quiz Pg. 25 PPT concepts and techniques Chapter 2: Sales Comparison Analysis Data Identification and Analysis Data Analysis of the Subject Property Identification of the Subject Property Characteristics Inspection of the Subject Property Site Characteristics Dwelling Characteristics Exterior Dwelling Characteristics Interior Mechanical Systems Garage/Vehicle Storage Review of other Specific Data for the Subject Property Pgs PPT Various methods of identifying the relevant characteristics of a property, including property inspection. The necessity and purpose of the appraiser s workfile for documentation. To recognize various site characteristics vital to the appraiser s analysis. Numerous types of specific data (both physical and legal) gathered in the course of the data collection process Subdivision Covenants and Restrictions Determining Market Conditions Defining the Subject Neighborhood Neighborhood Analysis Pgs PPT To properly analyze private regulations and limitations affecting the subject property. How to interpret market conditions and correctly classify the market area Analysis of Offering and Sale History of the Subject Property Data Analysis Conclusions USPAP requirements for analysis of the sale history of the subject property. How the conclusions formed through data analysis assists the appraiser with other conclusions, such as the highest and best use Minute Break Data Collection for Comparable Analysis Concepts of Comparable and Competitive Properties Comparable Properties Competitive Properties Comparable and Competitive Properties Data Array Pgs PPT To differentiate comparable and competitive properties. How comparable and competitive properties are used in the appraiser s analysis. Various methods of organizing data for analysis. How to systematically form conclusions using arrayed data

4 concepts and techniques Data Array Grid Example 1 Data Array Grid Example 2 Data Array Grid Example 3 Final Array of the Selected Comparable Data Lunch (Chapter 2 Continued) Application Case Study Quiz Pgs PPT Pg. 58 PPT Through case, how to organize, observe, and determine relevancy of data using a data array. Workgroup/ discussion Chapter 3: Sales Comparison Analysis Adjustments and Reconciliation Units of Comparison Elements of Comparison Property Rights Conveyed Financing Terms Pgs PPT How the appropriate unit of comparison is determined by the appraiser. Various units of comparison and their application. To define the various elements of comparison and the methods by which they are examined. That the agreement of sale or other agreement may provide insight into the necessity of analyzing certain elements for comparability Handling of comparable data in which the property rights conveyed is not consistent with the subject. Pgs PPT The components considered in the analysis of property rights conveyed. To recognize when the property rights conveyed in a comparable transaction is consistent with the subject To recognize circumstances when the particular financing terms may require an adjustment. That atypical financing terms are related only to the comparable data and do not have a relationship to the subject. Methods of deriving an adjustment for financing terms.

5 Conditions of Sale Market Conditions Location Physical Characteristics Identifying and Supporting Adjustments Using Quantitative and Qualitative Techniques Pgs PPT To recognize atypical conditions of sale. The treatment of comparable data where atypical conditions are present. That market condition adjustments are warranted when comparable transactions have taken place in dissimilar market conditions. That market conditions adjustments are applied to address change in market conditions and not the passing of time. Various circumstances when a location adjustment may be warranted. concepts and techniques Minute Break Various methods of identifying and supporting adjustments in the sales comparison approach. Paired Data Analysis Data Collection and Storage Obtaining and Storing Comparable Data Maintaining Adjustment Data To define and distinguish the difference between a quantitative adjustment and qualitative analysis. Through illustrated, how adjustments are derived using paired data analysis. The definition of statistical measures of central tendencies and how the method is used in interpreting the conclusions of the paired data analysis. The definition of regression analysis and how the method is used in interpreting the conclusions of the paired data analysis. The definition of graphic analysis and how the method is used in interpreting the conclusions of the paired data analysis. How comparable data and derived adjustments are handled as part of the appraiser s stored data Identifying Adjustments for Specific Elements Property Rights Conveyed Financing Terms Conditions of Sale Through, how adjustments for the primary elements of comparison can be derived. How adjustments for cash equivalency can be derived. Examples of conditions of sale and scenarios when an adjustment can, and likely cannot be derived

6 Market Conditions Location Physical Characteristics When adjustments for market conditions are appropriate. Methods for deriving a market condition adjustment. Examples of market condition indicators that can be relied upon for determining the necessity of an adjustment. Various methods that can be used for deriving a location adjustment. How to use paired-data for deriving adjustments for various physical differences. How the appraiser s judgment is relied on when determining certain adjustments for physical characteristics. concepts and techniques Minute Break Applying Adjustments Pgs PPT Dollar Adjustments and Percentage Adjustments Direction of Adjustment Ups and Downs Sequence of Adjustments Adjustment Application Examples DAY 1 Total Understand the application of dollar and percentage adjustments. The importance of the sequence of adjustments, especially when adjustments are being expressed as percentages. Understand, through s, how percentage adjustments are calculated for property rights conveyed, cash equivalency, and market conditions. How to analyze and adjust comparable data using units of comparison Hours DAY 2 (Chapter 3 Continued) Reconciliation Reconciliation Examples Pgs PPT How to form conclusions from the indications produced in the sales comparison analysis using various techniques. To apply logic and reasoning skills in reconciling conclusions from the sales comparison approach. 0-15

7 Net and Gross Adjustments Number of Adjustments Location, Market Conditions, and Physical Characteristics Relative Comparison Analysis Ranking and Weighting Statistical Measure Final Reconciliation How to use net and gross adjustments as an indicator of the relevance of the data that has been analyzed. How the number of individual adjustments can sometimes guide the appraiser as to the relevance of the data. That proximity and physical similarities of the comparable data to the subject can sometimes lend reliability. How relative comparison analysis relies on qualitative analysis techniques. How to use ranking and weighting techniques to develop value conclusions. The appropriateness and methodology of applying a statistical measure for producing a value conclusion. How the indications produced by one or more reconciliation techniques can be used in the final conclusion. concepts and techniques Minute Break Application Case Studies Case Study #1 Pgs PPT. 217 Through case, how to differentiate comparable and competitive properties. Workgroup/ discussion Case Study #2 Pg. 107 PPT. 218 Through case, how to identify adjustments using paired data analysis Case Study #3 Pg. 108 PPT Through case, the sequence and application of percentage and dollar adjustments Minute Break Quiz Pg PPT Lunch Chapter 4: Introduction to Financial Calculators The Basic HP 12c Keyboard On, Off, and Clear Pgs PPT The location and function of the basic calculator keyboard

8 concepts and techniques Simple Arithmetic Functions Addition Subtraction Division Multiplication Pgs PPT How to perform basic keystrokes of simple calculations Practice Problems Application problems How to use the calculator for combined arithmetic methods. Combined Arithmetic Methods Lot Size Stated in Acres Usable Site Area by Percentage Square Yards Cubic Feet Cubic Yards Pgs PPT Fundamental calculations used in appraisal. How to calculate a lot size in acres. Method to determine usable lot size by percentage. How to convert square feet into square yards How to calculate cubic feet. How to convert cubic feet into cubic yards. Practice Problems Application problems Chain Calculations Adding the Results of Two Multiplication Calculations Subtracting the Results of Two Multiplication Calculations Dividing the Sum of Two Multiplication Calculations Stack Registers Pgs PPT How to perform chain calculations for common appraisal problems. The function of the calculator s stack registers Practice Problems Application problems Minute Break Prefix Keys Setting the Decimal Point Changing the Decimal Setting Before, During, and After a Calculation Clearing the Prefix Keys Practice Problems Pgs PPT The location and function of prefix keys. How to set the calculator s decimal point. How to clear prefix keys. Application problems

9 concepts and techniques The function of the data storage registers. Data Storage Registers Clearing Data Storage Registers Pgs PPT How to program the data storage registers. How the data storage registers can be helpful in common appraisal applications The method by which to clear the data storage registers. Practice Problems Application problems Percentage Problems Net Amount Percent Difference Percent of a Total Pgs PPT Location and function of the percent keys. How the percent keys are used in common appraisal applications Practice Problems Application problems Minute Break Time Value of Money Functions Principles of TVM and the six functions of a dollar Financial Registers The location and function of the financial register keys Future Value of $1 How to calculate the future value of a dollar as a single payment Future Value of $1 Per Period (Annuity) Sinking Fund Factor Pgs PPT How to calculate the future value of a dollar with periodic payments. The concepts of a sinking fund. How to calculate sinking fund problems Present Value of $1 (Reversion) How to calculate the present value of a dollar as a single payment Present Value of $1 Per Period (Annuity) How to calculate the present value of a dollar with periodic payments Payment to Amortize $1 How to calculate amortization problems Practice Problems Application problems DAY 2 Total 7.5 Hours

10 concepts and techniques DAY 3 (Chapter 4 Continued) Quiz Pgs PPT Chapter 5: Introduction to Income Fundamentals The Income Approach When and Why? Problem Identification and the Income Approach Information or Conditions Discovered During Analysis Lease Basics Fee Simple, Leased Fee, & Leasehold Interests Types and Structures of Leases Flat Lease Variable Leases Step-up Leases Revaluation Leases Annual Increase Leases Percentage Leases Pgs PPT Pgs PPT To recognize through problem identification or later in an assignment when the income approach is applicable. The definition of a lease and who the parties are to the agreement. To recognize the various estates and interests of a property that is subject to a lease. About the various lease structures and terms and concepts. The various types of leases and their common applications. 10 Minute Break Income Concepts and Components Income vs. Rent Contract Rent Market Rent Measures of Income and Benefits Potential Gross Income Effective Gross Income Net Operating Income Reversionary Benefit Operating Expenses Fixed Expenses Variable Expenses Reserves for Replacement Rent and Income Factors Gross Rent Multipliers Pgs PPT To differentiate income from rent. How contract rent differs from market rent. The various components and applications of the measures of income and benefits. To define and recognize the various expense types that are considered operating expenses. Common applications for multipliers. That the use of multipliers requires significantly similar data. GRMs use only income derived from rent from the living units. A GRM is used in many common residential applications

11 concepts and techniques Gross Income Multipliers The GIM considers income in addition to rent from the living units. The GIM can be derived and applied to either potential gross or effective gross income. That a GIM is derived and applied to annual income. 10 Minute Break Rates of Return Overall Capitalization Rate Overall Yield Rate Application Case Study Pg. 165 PPT That there are various categories of return rates the most common being the overall capitalization rate. An overall capitalization rate is comprised of the rate to equity and the rate to debt or mortgage. Overall capitalization rates are applied to a single-year NOI. A yield rate considers a series of income flows over the entire investment period as well as reversion. Through case, how to determine the applicability of the income approach and the sales comparison approach in a particular appraisal assignment. Workgroup/ discussion Quiz Pg. 166 PPT Lunch Chapter 6: Income Analysis Multipliers Gross Rent Multipliers GRM Pgs PPT The two primary steps necessary to derive a GRM. The methodology by which a GRM is derived. Through, the types of transactions that can be analyzed in order to derive a GRM Determining the GRM from Market Data The fundamental elements of determining market rent. How rent surveys are used in the determination of market rent. Techniques by which market rent data can be adjusted How transactional data is analyzed for identification of a GRM.

12 Applying the GRM to the Subject The methodology for applying a GRM to the market rent of the subject property. concepts and techniques Minute Break Gross Income Multipliers Determining the GIM from Market Data Applying the GIM to the Subject How a GIM differs from a GRM. Key points regarding the derivation and application of a GIM. To define and recognize the difference of income vs. rent. Through, how a GIM can be derived using potential gross income or effective gross income. Through, when the type and source of other income is comparable. How total income of the property is analyzed for the derivation of the GIM. How the GIM must be applied consistently with how the GIM factor was derived. The application methodology of a PGIM for developing a value opinion for the subject property. The application methodology of an EGIM for developing a value opinion for the subject property Minute Break Direct Capitalization Using an Overall Rate Determining Net Income of the Subject Property Pgs PPT The definition of direct capitalization relevancy of the technique. The major components of direct capitalization. The elements of NOI and the methodology of the analysis To define PGI and identify data that can be used to estimate PGI. Estimating PGI The use of a rent roll in analyzing the level of rents for the subject property. How a rent survey is used in determining market level rent or income potential

13 Estimating Vacancy and Collection Losses and EGI Estimating Operating Expenses and NOI DAY 3 Total How vacancy and collection losses are determined from market data. How vacancy and collection losses are calculated. That once vacancy and collection losses have been deducted from PGI, the result is EGI. To define the three types of operating expenses and recognize expenses that are not operating expenses. To recognize and categorize various expenses for the purpose of developing a reconstructed operating income statement. To calculate replacement reserve estimates. That once operating expenses are deducted from EGI, the result is NOI. concepts and techniques Hours DAY 4 (Chapter 6 Continued) Determining the Overall Capitalization Rate Using Market Data Using the Band of Investment Technique Applying the Overall Capitalization Rate to the Subject What information is needed to derive an overall capitalization rate from market data. How market data is analyzed for determining relevance. The mathematical formula for deriving an overall capitalization rate using market data. The components of an overall capitalization rate. To define mortgage constant and the role that it plays in an overall capitalization rate using the band of investment technique. How the mortgage capitalization rate and the equity capitalization rate are determined. The mathematical formula for deriving an overall capitalization rate using the band of investment technique

14 concepts and techniques Reconciling the Income Approach Pgs PPT That reconciliation is an ongoing process in the assignment using the income approach. The relevance of the income approach in a common residential appraisal assignment. Lecture Application Case Studies Case Study #1 Pg. 197 PPT Through case, how to determine an indicated market rent and the derivation and application of a GRM. Workgroup/ discussion Case Study #2 Pg. 198 PPT Through case, how to derive and apply a GIM Case Study #3 Pg. 199 PPT Through case, how to derive an overall capitalization rate from market data and apply the results to NOI to produce an indicated value using direct capitalization Minute Break Quiz Pgs PPT Chapter 7: Using the Sales Comparison and Income Approaches in Special Situations To define partial interest. Appraising Partial Interests and Special Ownership Leasehold and Leased Fee Interests Pgs PPT To define a leasehold and leased fee interest. The various positions of the leasehold and leased fee estate. Through, how leasehold and leased fee interests are appraised The definition of an easement. Easements The types of easements. Through, how the positive and negative effects of an easement are appraised Minute Break Other Appurtenant Rights Examples of other appurtenant rights that could be appraised. Methodology that could be employed in the valuation of appurtenant rights

15 Timeshares Life Estates Lunch The definition of a timeshare and commonly employed techniques for their valuation. To define a life estate. The parties and components of a life estate. Through, valuation methodology when a life estate is a relevant property characteristic. concepts and techniques Using Combined Approaches Using the Income Approach as a Basis for an Adjustment Using the Income Approach as the Basis for Depreciation Pgs PPT When and how the income approach can be used as the basis for an adjustment. When and how the income approach can be used as the basis for depreciation Minute Break Special Requirements for Appraisals Used in Residential Lending Observing Fannie Mae Requirements and Guidelines Sales Comparison Approach Income Approach Pgs PPT That secondary mortgage markets may have requirements and guidelines that add to the appraiser s development (and reporting) obligation when using the sales comparison or income approaches. That USPAP requires compliance with any assignment condition specified in an assignment to comply with Fannie Mae (and others). General requirements of Fannie Mae. Specific regulations and guidelines that must be observed in compliance with Fannie Mae assignment conditions when developing the sales comparison approach in an assignment. Specific regulations and guidelines that must be observed in compliance with Fannie Mae assignment conditions when developing the sales comparison approach in an assignment. That there are specific reporting forms that are used (depending on the assignment) when the income approach is applicable that require special development procedures. Lecture

16 Fannie Mae 1004 MC - Market Conditions Addendum Application Case Study Quiz Pg. 229 PPT Pgs PPT That Fannie Mae requires the analysis and reporting specific to the 1004MC reporting form for residential assignments. Through case, how to determine if the presented data reflects a positive or negative leasehold and the value of the leased fee or leasehold interest. Workgroup/ discussion concepts and techniques Minute Break FINAL EXAM DAY 4 Total Course Total 7.5 Hours 30 Hours