Chapter 1 cont Flashcards
Market V
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 definition of the term identified by the appraiser as applicable in an appraisal.
Comment*** Forming an opinion of market value is the purpose of many property appraisal assignments, particularly when the client’s intended use includes more than one intended user. The conditions included in market value definitions establish market perspectives for development of the opinion. These conditions may vary from definition to definition but generally fall into 3 categories:
- the relationship, knowledge and motivation of the parties (i.e., seller and buyer);
- the terms of sale (e.g., cash, cash equivalent or other terms)
and,
- the condition of sale (e.g., exposure in a competitive market for a reasonable time prior to sale).
Appraisers are cautioned to identify the exact definition of market value, and it authority, applicable in each appraisal completed for the purpose of market value.
For example, in an appraisal for a federally-related lending transaction, an appraiser must use the definition of market value found in federal banking regulations. In an appraisal for a highway condemnation case, an appraiser must use the definition of market value that appears in applicable federal or state laws or regulations.
Market Value (USPAP Rule 1-2(c))
Identify the type and definition of value and, if the value opinion to be developed is market value, ascertain whether the is to be the most probable price:
(I) in terms of cash; or
(ii) in terms of financial arrangements equivalent to cash; or
(iii) in other precisely defined terms; and
(iv) if the opinion of value is to be based on non-market financing or financing with unusual condition or incentives, the terms of such financing must be clearly identified and the appraiser’s opinion of their contributions to or negative influence on value must be developed by analysis of relevant market data.
Purpose of an Appraisal
The objective of an assignment - e.g., in an appraisal assignment, to develop an opinion of the defined value of any real property interest.
Intended Use
The use or uses of an appraiser’s reported appraisal or appraisal review assignment opinions and conclusions, as identified by the appraiser based on communication with the client at the time of the assignment.
Intended User
The client and any other party as identified, by name or type, as users of the appraisal or appraisal review report by the appraiser on the basis of commination with the client at the time of the assignment.
Retrospective Value Opinions
Two dates are essential to an appraisal report. Standards Rules 2-2(a)(vi) and 8-2(a)(vi) and 8-2(b)(vi) require that each appraisal report specify that each appraisal report specify the effective date of the appraisal and the date of the report. The date of the report indicates the perspective from which the appraiser is examining the market. The effective date of the appraisal establishes the context for the value opinion. Three categories of effective dates:
(a) Retrospective (past)
(b) Current
(c) Prospective (future)
may be used, according to the intended use of the appraisal assignment.
Prospective Value Opinions
Along with available factual data, are intended to reflect the current expectations and perceptions of market perceptions of market participants. They should be judged on the support for the forecasts that existed when made, not on whether specific items in the forecasts are realized at a later date.
Effective Date
Date of value.
Report Date
Date the report is signed and final report issued.
Standards Rule 1-2(d)
Identify the effective date of the appraiser’s opinions and conclusions.
Extraordinary Assumptions
An assumption, directly related to a specific assignment, as of the effective date of the assignment results, which, if found to be false, could alter the appraiser’s opinions or conclusions.
COMMENT: Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal or economic characteristics of the subject property; or about condition external to the property such as market conditions or trends; or abut the integrity of data used in an analysis.
Hypothetical Condition
A condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.
COMMENT: Hypothetical conditions are 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.
Assignment Conditions
Accomplishing the first four action steps (SR 1-2(a) thru (d) … … provides the basis for deciding which of the property’s characteristics are relevant in the assignment. This information, together with the appraiser’s competency (knowledge and expertise) in appraising the specific type of property involved, permits the appraiser to determine whether any extraordinary assumptions or hypothetical conditions are necessary to complete the assignment and to make a reasonable and supportable scope of work decision.
