Mixed use development appraisal

11221862_1062426540442254_1175843060924474763_oReal estate valuation is the process of developing an opinion of value. It can be used in determining the value of property whether single use or mixed use development.

So far we have discussed more on the single use appraisal, now let me share and discuss the appraisal of mixed use development.

In valuing property, the first and foremost we should have to know is the intended use or the purpose of the appraisal. It will serve as a guide in appraising the mixed use property.

Mixed-use development is—in a broad sense—any single building, that blends a combination of residential, commercial, institutional, or industrial uses, where those functions are physically and functionally integrated. It may also a site or a building, complex of buildings, or district of a town or city that is developed for mixed-use by a private developer, government agency, or a combination.

In a nutshell, there are benefits in mixed use developments. For example, it reduces distances between housing and workplace, retail business and other. It is now common to have developments which align to the concept of live, work and play.

It is a great challenge to an appraiser in coming out of an opinion of value that reflects the actual use and the highest and best use of the mixed use property. An appraiser can use the different approaches in valuation such as sales comparison, cost and income approach. And since it is a mixed use, you have to use different comparable, and methods. An appraiser has to dig more data and information from the knowledgeable persons in the neighborhood, government officials and industry leaders where the property is located.

In analyzing data, we have to consider the zoning, allowable use, predominant use, conforming use, legal and illegal non-conforming use, the highest and best use, neighborhood analysis, market trends not only of the city but the region as well.

Nothing beats the importance of conducting actual inspection of the property and the neighborhood. It will give concrete data and visualization of the property. The trend of development in the locality and region, will broaden your perspective and analysis.

Valuing mixed use properties will force the appraiser to be more analytical and creative in solving problem –to determine the market value that is reliable and defensible.

ASEAN IS ONE TONIGHT

We welcome 2016, not just a new year, but a new era for our country and other members of ASEAN. ASEAN is one community tonight.

The ASEAN Economic Community endeavors to become a single market and production base. It will unify the 625 Million people of 10 countries under ASEAN as a single community. ASEAN will be connected thru effective air, sea and land links. Further development of regional connectivity will help people, goods and services flow across the region more quickly and cheaply.

ASEAN identifies professions that are allowed to practice in other ASEAN countries. Small-Medium Enterprises (SME) will become more competitive. Those who are open to ASEAN market can expand operations and acquire office space and industrial properties outside the Philippines.

ASEAN community gives us more opportunities. The free movement of goods, services, skilled labor and capital would require more commercial and residential buildings and other infrastructures.

At the same time, it brings challenges to connect. Bigger, skilled and more advanced real estate practitioners from other ASEAN countries can enter the local market. They need local partners and counterparts.

New era requires new mindset and system. It means old habits and comfort zones should be archived. It is an era where connectivity and excellence is a must.

Happy New Year!   Welcome to ASEAN Community.

ASEAN-logo-One-community

Bagging an appraisal contract

A big corporation contacted me for an appraisal work. They asked for my credentials and if I’m a bank accredited appraiser. Previously, they hired a research group to do the valuation, but not satisfied with the result.

I commended their effort to look for a licensed and experienced appraiser, and gave them my credentials. I explained to them the difference between an experienced bank appraiser and non-bank appraiser.

It pays to be able to discern between the two.

What are the difference?

Non-bank appraisal is a market niche, often best suited for appraisers who think outside the box. These assignments include appraisal reports performed for situations such as pre-listing, financial reporting, divorce settlement, other litigation related cases, and government agencies appraisal needs. Intended users need to find the most qualified and experienced appraisers. Well-vetted experts are most applicable when testimony is a possibility or when looking at unique properties.

Take lawyers, for example; They need someone who can report not only well enough to be reliable but also defensible in court and a communicator. It takes a good professional to write a report, but an even better one to be effective to withstand in court trials and argumentation with fellow commissioners and lawyers. An appraiser should know how to convince the commissioners in court of his valuation, and come up with a recommendation, thereby hastening the trial process.He must also be able to communicate complex valuation theory to assessors, lawyers and judge who may have no deeper understanding of valuation processes, approaches and adjustments. In other words, the appraiser must become an effective teacher in addition to being a good report writer.

Meanwhile, many appraisers who work primarily with banks are confine within company scope of work. Banks often require appraisers to utilize comparable sales within a “price range” of an area, and not to exceed company guidelines when adjusting comparable sales and in using valuation approaches.

Clients and user of appraisal work should tread very carefully when selecting appraisers. Choosing an appraiser with limited experience could result in less than optimal results.

After the discussion with their top management, they decided to get my service. Another big corporation in my client list.

Experience in Appraisal Matters

In real estate appraisal practice, there are challenges that an appraiser should strive to overcome and characteristics needed to acquire.

Valuing properties requires good judgment. An appraiser can use different methods in valuation, outlined in the international valuation standards. There are different approaches like market data, cost or income approach in valuation. He can also use other approaches like subdivision development approach, residual approach and many more.

But in choosing an appropriate valuation methodology is another thing. The appraiser considers not only the purpose of the appraisal laid out by its client, but the most important, the property’s highest and best use. This judgment emanates from the appraiser’s experience.

Good judgment is also required in analyzing comparables or “comps”. The appraiser identifies the “terms” of the sale – was it an arm’s length transaction in which both parties were equally motivated? Was it a relocation transaction where an owner was attempting to shorten the time on the market to find a buyer? Regardless, no one can tell the appraiser on what comparables to use. It is based on the appraiser’s judgment.

In whatever situation, an experienced appraiser has an edge. He always strive to look for other appraisal methodology and will cull more data on comparables with the sole purpose of rendering an opinion that will truly represents the true market value of the property.

Thus in real estate appraisal practice, experience and good judgment truly matters.

Life of a Real Estate Appraiser

What an appraiser does day to day ?

Real estate appraiser or valuer is someone who estimates the value of the land and the buildings. Most commonly, appraisers perform work for banks and companies, although many appraisers engage in a wide range of assignments, including for example, for sale, litigation, right of ways, divorce, valuation for financial reporting, estate planning and more. The appraisal work can vary greatly and can often be more complex than typical valuation assignments.

When carrying out appraisal work, appraisers’ main role is to provide an objective and unbiased opinion about the value of a property for their clients, who typically are owners, investors or lenders. Appraisers do this by gathering a series of facts,site inspections, interviews, statistics and other information, then analyzing the data to develop an opinion of value.

So what does an average day in the life of a typical appraiser normally look like?

Individuals who enjoy analytical thinking and problem solving generally have the makings of good appraisers, since each valuation assignment challenges the appraiser to put his/her analytical skills into practice, exercise good judgment and communicate effectively.

Although appraisers are typically based in an office, they spend a good deal of time at site visits. Most work full-time, during standard business hours, but appraisers often have the flexibility to customize their work schedules.

Depending on assignment, the appraisal site and specific tasks will vary. A licensed and certified appraiser is qualified to appraise all types of properties including lot, house and lot, condominiums, duplexes and apartments. An experienced appraiser is usually doing appraisal of all properties, but generally focuses on property used commercially, such as office buildings, stores and hotels.

Often times, an appraiser will conduct a fair amount of research up front before beginning work onsite, such as verifying legal descriptions of real estate properties in the assessors office or other public records.

Appraisal On-site

While onsite, an appraiser will inspect both new and existing properties, noting unique characteristics of the property or surrounding area, such as the property’s condition, structure, interior, amenities and upgrades. The appraiser also will photograph the interior and exterior of the property to use when preparing the appraisal report.

An appraiser usually uses the three approaches to value- sales approach, cost and income approach. Using the sales approach, the appraiser examines comparable sales after the site visit, to help determine value. The appraiser will also consider location and condition of the property, neighboring properties, documents, records, previous appraisals, the view from the property and income potential.

Depending on the assignment, an appraiser may also use the income approach or cost approach to develop an opinion of value. Cost approach seeks to determine how much a property would cost to replace (meaning, rebuild) after subtracting accrued depreciation. While income approach is a method of arriving at the appraisal value of a property on the basis of its opportunity cost.

Analyzing all of the data gathered, the appraiser prepares the written report showing the opinion of value.

Real estate appraisal is an interesting, rewarding, and challenging profession.

Appraiser as an Expert Witness


Real Estate Appraisers
are often requested to provide an expert opinion as to the value of a property (an appraisal), for the purposes of determining just compensation. In an expropriation proceeding commissioners should at least be appointed to determine just compensation in accordance with the procedure in Section 5 of Rule 67 (Rules of Court). xxx the court shall appoint not more than three (3) competent and disinterested persons as commissioners to ascertain and report to the court the just compensation for the property sought to be taken.xxx

Additionally, appraisers are often requested to conduct an appraisal where the purpose is not explicitly described as being for litigation, but where litigation may result. Examples would be an appraisal completed for eviction cases, divorce proceedings, foreclosure or power of sale, or for civil forfeiture. Although appraiser’s reports are often entered into evidence for court, the appraiser is not necessarily called upon to provide expert witness testimony or to defend the report. However, it is prudent for the client ordering an appraisal to be sure the appraiser is aware of the duty of the expert witness and the court rules for report requirements, prior to engagement for an appraisal assignment.

“It is another area in our profession where we can lend services and specialize in” said Gus Agosto. Gus has been appointed by a lower court in Lapulapu City as a commissioner that will help the court in determining just compensation in expropriation case on trial. He also provided support to lawyers for litigation and court cases like eviction, judicial settlement and divorce.

The appraiser as experts may also provide retrospective appraisals, independent-appraisal analysis, appraisal review , expert witness testimony and litigation-support services in all real property valuation.

When selecting a real estate appraiser for litigation support, knowledge and experience matter. An appraiser should strive to be more knowledgeable and experienced property appraiser in providing litigation support and expert witness services.

Highest and Best Use

It Is important for a real estate practitioner to know not only the current market value of the land they are marketing or dealing with. It is also equally important to determine its highest and best use. The highest and best use of a specific parcel of land is not determined through subjective analysis by a property owner, developer, real estate agent, or appraiser; but rather, it is a use shaped by the competitive forces within the market where the property is located.

In a real sense, the definition of highest and best use encompasses four tests. It is …
• the most probable use of land or improved property that is legally possible, physically possible, financially feasible (and appropriately supportable) from the market, and which results in maximum profitability.

An attempted analysis of highest and best use involves two considerations: [1] the most likely and profitable use of the site “as if vacant” under the requirements set forth above and, [2] if a property is “already improved”, it is the use that should be made of the property to maximize value for non-income producing properties or, maximize net operating income on a long range basis for investment properties. In cases where capital expenditure is necessary to renovate or improve an income producing property, these costs must provide a sufficient rate of return (to the owner) for the total amount invested in the site and building improvements.

Basic highest and best use assumptions include:

• If the property is located in an area “zoned” for commercial use, the maximum productivity of the land as though vacant will likely be based on commercial use. If, however, the competitive level of demand is greater for say, residential or multi-family use, then the highest and best use of the property as improved would be for residential use. If market preference conflicts with zoning (and consequently violates the legal permissibility test), a developer will consider if there is sufficient profit incentive to justify the added legal costs, extended time frame, and potential neighborhood opposition before obtaining a zoning change and developing the site.

• As long as the value of the property “as improved” is greater than the value of the site as “if vacant”, the highest and best use is usually the “improved” property. Once the value of the vacant land exceeds the value of the improved property (including demolition costs), highest and best use will usually dictate that improvements be demolished.

The following are examples of narratives from appraisal reports outlining the primary criteria in estimating highest and best use…

LEGALLY PERMISSIBLE USE
• The present zoning classification of Highway Business encourages the use of the subject property for retail —clearly a definition consonant with the present use of the subject property and surrounding properties. Environmental conditions and urban infrastructure are adequate to support the present use and it’s current use appears to legally conform with the current zoning ordinance.

• The present lack of zoning would allow for a wide variety of residential and/or commercial/industrial uses. As vacant, the proposed improvements would be legally permissible subject to the same land use regulations that apply to all property types such as erosion control measures, environmental safety, watershed implementation, and government agencies compliance. There were no apparent adverse easements or encroachments which would adversely impact subject and there are no known private deed restrictions which would prohibit full utilization of the site.

• Lack of zoning in the county and no known restrictions concerning the property would permit virtually any use. Even though new zoning regulations may be imminent in the near future, it is probable that current use patterns (retail and offices – a supermarket, insurance office, restaurant, bank branch, convenience store, and so forth) would entail similar zoning.

PHYSICALLY POSSIBLE USE

• The vacant site is near level, highly visible from the highway, and is considered suitable for “low rise” improvements. Although no soil report has been reviewed, it is the appraiser’s opinion that the soil has sufficient load bearing capacity to support construction. All public utilities are available at the street and capacity for utilities does not appear to be a limitation.

• If vacant, the site appears to be of sufficient size to accommodate many types of commercial buildings and parking requirements for those buildings. Likely uses would include office or retail. As improved, the existing retail building adapts well, still has significant remaining economic life, and therefore should not be demolished. On the other hand, the roof should be replaced and exterior painted to sustain the condition of the building.

• The subject site is mildly sloping at its most visible/usable portion. Improvements are possible but construction would be limited by the size, shape, and topography of the site as well as the ability of the vacant site to accommodate on-site well and septic placements. In January, 2002 hopes for a new sewer line to the area were diminished after local officials decided against building a sewer line through the valley. Instead, they elected to spend Php 1,500,000 for a small treatment sewage plant. Further, the recent construction of a nearby Food Lion Center in this rural location required construction of an on-site waste treatment facility that cost in excess of Php 500,000 and required the acquisition of four additional acres. These examples, and the prices paid for raw land, are reflective of the difficulty, additional development risk, and increased costs necessary to develop marginal sites for commercial use.

FEASIBLE AND MARKETABLE USES

• The current market value of the subject is driven by its current use. A general shortage of developable sites in this mountainous region has sustained land prices, encouraged development of marginal sites, and demolition of those buildings that no longer produce economic return. Case in point, rapid development along the Highway corridor. The advent of growth along the corridor has driven prices out of reach for most uses except those catering to brand name retailers, fast food/restaurant chains, and/or strip centers. Outdated buildings are being acquired and demolished to make way for more modern structures that can produce greater economic return.

• For the subject, it is fairly new and the cost to demolish would appear to make this property too costly as raw land. The location has high traffic volume – a requirement for retail use, but it has only marginal visibility (due to it’s elevation above the highway) and limited access – also requirements for retail. It’s present use as retail is constrained by the following: a lack of road frontage, excessive above-the-road elevation, small site size, and poor access – factors that would likely discourage brand retailers from acquiring the site if vacant. Although access may be cured at some cost, the elevation of the site, limited visibility, and blocked signage cannot be financially overcome. Market data suggests office and “secondary” retail pricing are competitive. Given these limitations, probable uses would include: [1] the continued retail use or, conversion to office use if conversion costs can be sufficiently amortized.

• The property is presently improved with a one-story 2000 sq. m. branch bank facility. The structure is reasonably well designed and in good condition however, it does not have the modern appearance of more recently constructed facilities. On the other hand, there are no other branch bank facilities in this section of the City and the present use as a branch bank is felt to command a competitive advantage due to the lack of competition of other banks in the market. Further, it is the appraiser’s opinion that use of this location for this purpose may command a premium in the market.

Appraisal add credibility to listing price

Pricing a listing is one of the hardest— and perhaps most important — tasks in real estate. Sellers can get it wrong in either direction: If the asking price is too low, the sellers might end up leaving money on the table; if it’s too high, they won’t tap into the right target group, will lose a lot of time and may then end up selling for even less.

Can you rely on a “mata-mata” or guessing? The answer is “NO”. You cannot. Relying on a guess or the word of a non-certified person is inaccurate and will not estimate the true market value of a property. However, with the educated and experienced real estate appraiser, who apply the methodology of appraisal and employ the ethical guidelines for determining values, can be relied on as unbiased and independent. Appraisal will add credibility to your pricing.

In addition, appraisal analysis the market to determine the highest and best use of the property, thereby come up with a value that is credible and reliable.

Buyers, particularly foreign investor and businessmen, tend to buy property with confidence if it was appraised by a third party.

In our real estate profession where trust is the most important aspect, a real estate professional-broker and agents, should encourage in acquiring the services of a licensed appraiser. It is more beneficial to the clients having it appraised and help in fostering our relationship with them. In the long run, the confidence of the public on real estate practitioners.

Add credibility to your listing price, get the services of a real estate appraiser.

3 Ways Appraisers Can Help Buyers of Vacation Homes

Vacation-home sales accounted for 13 percent of all transactions in 2013 — their highest market share since 2006 — according to the National Association of Realtors’ 2014 Investment and Vacation Home Buyers Survey. As growth in the equity market continues to benefit households, consumers are gaining the confidence to invest in second homes for recreational use.

When considering the purchase of a vacation home, buyers should enlist the help of a qualified residential real estate appraiser to help them evaluate the property’s investment potential.

What is the location of the property worth?

Buyers can do their due diligence by familiarizing themselves with the location of the recreational property to help them determine if they want to make the investment. Does the neighborhood feel safe? Is it currently well-kept and in close proximity to entertainment or attractions that are important to the buyers?

However, buyers need the expertise of a real estate appraiser to help them understand how location and the future prospects of land values influence property returns in addition to the physical structure of the home itself.

According an Appraisal Institute brochure, “Understanding the Appraisal,” it’s the appraiser’s job to investigate the nature of the market for that property, competitive properties and the buyers and sellers who constitute the market for that property type. The principles of supply and demand, substitution, balance and externalities help the appraiser develop a credible opinion of value.

What is the property’s rental potential?

Because this is a second home intended for recreational use, buyers will likely spend only a portion of each year using the vacation property and might be interested in the rental potential of the home in order to recoup some of the money they invested.

To develop an opinion of the property’s rental potential, the Appraisal Institute says a real estate appraiser will investigate specific data, including the comparable rentals in the area, how much income the property can generate based on the comps, the expected reduction in gross income caused by vacancy and/or collection loss, and the anticipated annual operating expenses required to maintain the property.

Should any personal property be included with the sale of the home?

Is it beneficial for buyers to request that personal property — such as furniture, cars or boats — be included with the sale of a recreational property?

In an interview with radio station KPLU in Seattle, real estate appraiser Richard Hagar, SRA, says if the buyer is paying cash for the property, or if it is seller financing, then including personal property in the sale is not a problem. However, Hagar cautions that personal property is not supposed to be part of a mortgage.

“A mortgage should be a loan only on the value of real estate, so any personal property must be subtracted from the loan amount,” Hagar said.

Posted by Appraisal Institute Staff