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Commentary on Residential Property Appraisal

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Commentary on Residential Property Appraisal Resource Center by Dan L. Swango, PhD, MAI, SRA Exploring Residential Property Dynamics: Commentary on Residential Property Appraisal About This Column Appraisers who value residential properties complete assignments in dynamic markets. This edition of Resource Center looks at Residential Property Appraisal, a resource that offers appraisers information and guidance on application of real property concepts in both typical and atypical residential assignments. he newly published Residential Property Residential Property Appraisal is an essential text for the res- Appraisal by Mark R. Tidential appraiser, whether seasoned or Ratterman, MAI, SRA novice. This is the most recent in the Appraisal (Chicago: Appraisal Institute, Institute’s books of particular interest to residen- 2020). 500 pages, Illus. tial appraisers.1 Its sixteen chapters cover the Price: $85 softcover or PDF basics—addressing timeless topics with current AI Price: $75 applications. In addition, it covers subtopics such Print and PDF bundles available as specialty residential property types, green and at http://bit.ly/AI_Online_Store high-performance houses, and specialty residen- tial markets. The reader will find helpful supple- mentary information in a section on financial calculator basics and a bibliography for those AI-RRS, contribute chapters on residential spe- interested in digging deeper. cialty segments as described below. The author, Mark R. Ratterman, MAI, SRA, Residential Property Appraisal is intended for is an outstanding communicator. He offers clear both instruction and reference. Its complete, explanations of basics that even experienced functional index is an essential aid for looking up appraisers can use for a refresher and that nov- topics or terms of interest. Of course, the PDF ices need for in-depth understanding and clarity. version of the book inherently carries the ability The writing is clear and to the point, with ample for the user to search for any word or group of examples, illustrations, and resource citations. words. The appendix at the end of this column In addition, Sandra K. Adomatis, SRA, LEED lists key concepts that are defined in Residential Green Associate, and Maureen Sweeney, SRA, Property Appraisal. 1. Other books include, but are not limited to, The Valuation of Condominiums, Cooperatives, and PUDs; Residential Green Valuation Tools; Appraising the Tough Ones: Creative Ways to Value Complex Residential Properties; Valuation by Comparison: Residential Analysis and Logic, 2nd ed.; Identifying Residential Architectural Styles; Using Residential Appraisal Report Forms: URAR, Form 2055, and the Market Conditions Form, 2nd ed.; and An Introduction to Green Homes. Of course, residential appraisers also rely on the Appraisal Institute’s texts The Appraisal of Real Estate and The Dictionary of Real Estate Appraisal. 206 The Appraisal Journal • Summer 2020 www.appraisalinstitute.org Resource Center Chapter 1, “Real Property Ownership and look at the sources of mortgage money, the sec- Appraisals,” introduces foundational concepts ondary mortgage market, and influences on the in real estate including the following: mortgage market. This discussion covers the fed- • Forms of ownership eral reserve system, credit regulation, and the US • Distinction between real property Department of the Treasury. The chapter is and real estate rounded out with a discussion of the particulars • Personal property of loan risk, points, financial trends, financing • Tangible and intangible property fraud, and financing plans and trends. • Fixtures and trade fixtures • Types of estates Chapter 3, “The Valuation Process, Begin- • Eminent domain ning the Appraisal, and Data Collection,” • Powers of government offers a good in-depth overview of the approaches • Leasehold and leased fee interests to value, which are more specifically addressed in • Identification of property rights later chapters. The text here starts with an effec- • Condominiums and cooperatives tive discussion of the valuation process and a dia- • Planned unit developments (PUDs) gram of the steps involved. The author presents a thorough treatment of the important topics of The chapter also has excellent to-the-point dis- scope of work, data collection, property descrip- cussions about contracts, leases, types of deeds, tion, site value, and data analysis. The text pro- and options. vides a practical look at elements of data analysis The second part of the chapter provides an in the appraisal process—including market and overview of appraisal and appraisers. It explains neighborhood analysis and highest and best use what an appraisal is, why appraisals are needed, analysis—with illustrative examples. the valuation process and related services, and Chapter 3 concludes with a brief discussion of residential appraiser qualifications, including reconciliation and reporting the defined value, licensing, certification, designations, credentials, with more thorough examples left for later in the and competency. book. The real-world topics of scheduling and planning, collection of data on the subject prop- Chapter 2, “Principles of Value, Real Estate erty, property inspection, and collection of data Economics, and Finance,” takes a look at the on comparable properties also are discussed. concept of value and types of value; gross and net pricing; insurable value; and assessed value. Chapter 4, “Neighborhood and Market Area Principles of real estate economics are clearly Analysis and Highest and Best Use,” provides explained. Real estate markets are examined by information about analysis of location. The dis- property type, including their key characteristics, tinction is made between a market study and a and the differences between neighborhoods, dis- marketability study, and an explanation is given as tricts, and market areas are explained. The clas- to the questions each answers, the items included, sic “four forces that influence value” are presented and the use of each. The distinctions between along with the significance of changes, trends, neighborhood and market area are explained, and and cycles in real estate markets. critical market area influences and trends are The second portion of the chapter gets into the presented. The discussion addresses the following financing side of residential real estate, with a topics related to these concepts: www.appraisalinstitute.org Summer 2020 • The Appraisal Journal 207 Resource Center • Social influences, including population • public and private limitations on trends and characteristics, community ownership rights of the site (zoning, and neighborhood organizations, and the covenants and use restrictions, need for understanding the quality of ser- party-wall agreements); vices, establishments, and neighborhood • understanding physical characteristics associations. of the site (immediate location • Economic influences, including demo- character istics, physical and economic graphics about income and purchasing linkages, environmental influences); power, financing availability, real estate • tax and assessment information; prices, rent levels, new construction, gov- • real estate tax status (especially ernment services and tax influences, public compared to similar properties); and private restrictions, schools, and owner- • special assessments; occupancy rates. • government and private services • Environmental influences (physical and and costs; geographic), including siting factors, flood • explanations of the types of legal zones, location as it relates to the overall descriptions; and community, transportation systems and • data sources for site information. linkages, recreation, amenities, soils, views, characteristics and conditions of resi- The chapter has a thorough discussion of each dences, and adequacy of utilities. There is item, with illustrations, exhibits, and examples. also discussion of the importance of consis- tency in markets and reporting neighbor- Chapter 6, “Improvements Description,” hood conclusions. addresses the description of building improve- ments, from site placement and utility to con- Highest and best use is the next main section of struction materials and building systems features. the chapter. Several commonly used highest and The chapter discussion covers Fannie Mae qual- best use definitions are presented and discussed. ity of construction ratings and property condi- This chapter offers a well-explained section on tion ratings. Residential architecture and trends, highest and best use of a site as though vacant types of houses, house living zones and condition and highest and best use of a property as improved. are all in this chapter. The concept of consistent use is addressed and analyzed. There is also a useful discussion of spe- Chapter 7, “Land and Site Valuation,” delves cial situations in highest and best use analysis; it into the difference between land and site. The tackles the concepts of interim uses, legally non- text explores the notion of valuation of property conforming uses, excess and surplus land, and rights to or in the physically described real estate; neighborhoods in transition. Examples are the principles of progression and regression; included throughout the discussion to augment and the market forces that influence land value. definitions and concepts. The chapter allocates significant discussion to the valuation of land and site in the residen- Chapter 5, “Site Description,” addresses what tial context. The major land and site valuation is needed for understanding of a site
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