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Appraisals (Part 2 of 3) | Real Estate Exam Prep Videos - YouTube
Channel: The Real Estate Classroom
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hey everyone my name is paul pacheski
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and welcome to the real estate classroom
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youtube channel like always do me a
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favor give this video a thumbs up hit
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on the notification bell and comments
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and questions we love comments and
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questions put them down below i'd
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appreciate it
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so this is video two of three discussing
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appraisals
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in this video we're going to discuss
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forces or things that impact
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valuation all right this is video number
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two
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let's get started
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so in our first video we discussed um
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appraisals the 50
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000 foot view of how the appraisal
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process works we discussed the
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val or the the definition of valuation
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and we also discussed reasons why
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someone might need
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an appraisal done in this video we're
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going to discuss
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things or forces that impact or affect
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the value of property there are four
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major buckets
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major ones that do impact from a broad
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perspective
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the valuation of a community a
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neighborhood or an individual property
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and the first one is government or
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political actions this is
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you know for example the fed if the fed
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is raising interest rates or lowering
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interest rates that has
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an impact on mortgage interest rates
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property taxes you know in many
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communities property taxes are extremely
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high and every
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time the the taxes go up that impacts
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uh the buying and the selling of
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residential property it impacts
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rents those type of deals
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local regulations and zoning and
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building codes and
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environmental regulations they all
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impact the value of property
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i i gotta be honest about i don't know
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20 years ago i was teaching a
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pre-licensing class
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and there was a couple that was in my
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class
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and they perfectly illustrated a
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situation
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that impacts the value so they had come
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from oregon
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and i'm in i'm in nebraska and they had
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purchased like i don't remember it was
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50 or 100 acres of timber
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the value of that land was in the timber
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that was on it
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and they paid like i don't know a
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million or two million dollars for it
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they actually had a mortgage and
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everything
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and it was based on the income that the
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timber would provide well shortly after
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they closed
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mind you they have a million or two
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million dollar mortgage
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uh the federal government came in and
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they discovered there was spotted owls
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on that property and at that time the
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spotted owl was on the endangered
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species list
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and they could literally not do anything
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and they were very restricted on just
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hiking onto their own property
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and it totally devalued the property to
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pretty much worthless and they ended up
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losing everything
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again that is that is a
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an example of where regulation impacts
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the valuation of the property
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number two the economic or financial
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factors
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you know is the industry or are there
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industries coming into this community
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are they leaving are they bringing jobs
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in are they laying people off
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all of that determines that that future
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impact
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value number three physical factors
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you know the external location
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conditions such as access to
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parks and highways and hospitals and
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schools many
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areas of the country schools determine
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the value
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uh that's probably one of the more
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prominent
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amenities that impact value in my
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location here in omaha it's not uncommon
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that
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one school district the prices the
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demand and the prices of housing is
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going to be higher than other school
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districts
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and then sociological factors this is
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where we're
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matching the the community's
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uh population density with the housing
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trend
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so if your for example if a community is
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has a high density of elderly well how
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many ranch homes
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are in that community there's a direct
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correlation between the two and if
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they're not balanced
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then that can do one or two things if it
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either increases value or it
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decreases it so those are the things
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under bucket number four
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but there are other things too that we
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need to know about
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and we're going to discuss them and
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there are 11 of them and quite frankly
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i have seen or heard from students where
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some or all of these concepts are on
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their real estate licensing exam in fact
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on my broker's exam i had a couple of
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these
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that are on your screen here so we're
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going to discuss each one of these
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because you have to
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know number one is highest and best use
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one of the things the appraiser is going
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to do
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is determine what is a property's
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current use
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and what's the value based on current
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use then they're going to
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determine what's the highest and best
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use and many times what we
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this is in commercial type properties
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not not really in
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residential type properties but
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definitely in commercial
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so give me an example maybe the
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current use is a daycare and
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the uh highest and best use would be a
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grocery store
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but because of the zoning it is being
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used as a
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as a as a daycare and one other concept
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that sometimes many lenders want to know
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is what's the intended use
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and what's the value of that so the
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present use is a daycare highest and
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best is a
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grocery store but the buyer is
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purchasing it for a garage
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so what is the value you know these are
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the things that appraisers are going to
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they're going to sort through number two
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the principle of
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substitution this is for the
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sales comparison approach to value or
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sometimes called the market
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data approach this presumes that a
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prudent buyer will pay
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no more for a property than the purchase
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price of a similar
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and equal desirable home here's another
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way of putting that
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the the buyer isn't going to pay more
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for an existing home
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than they are for new construction they
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can get
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a newer home with uh newer amenities for
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the same price
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that is called the principle of
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substitution
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utility value has to do with water how
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land can be used right so i got an
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example on your screen here
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so you have a beautiful wooded lot in
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the city limits maybe it's two acres
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it appears awesome man you could have a
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home in the city with privacy and
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everything else
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so on the outside it looks very valuable
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but then you do soil analysis and you
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find out that there's no way it's you
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can't build on it
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or there's easements there public
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easements that prohibit any kind of
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building
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right functional utility refers to the
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usability of a building that may be on
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there so
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point is is utility value looks can be
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deceiving and never judge a book by its
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cover that's what i always tell my
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students when it comes to utility value
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number four principle of contribution we
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go principle of contribution the value
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of the
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improvements is what adds or contributes
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to the market value of the entire
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property
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not what it costs to add the improvement
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this is a key factor
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when deciding to add to an existing
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improvement now number one an
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improvement
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is like a house on a piece of land
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this will happen in your real estate
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career i promise you the principle of
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contribution says that if you put in a
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50 000 edition that's going to bring up
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the value of your property
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but it may only bring it up to 30 000 in
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value not the full
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50 000 that it cost you
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uh to to add that that addition on to
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your house
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it contributes to the market value of
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the property
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but it does not reach the level of the
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cost
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that is the principle of contribution
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principle of change
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age changes value neighborhoods
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cities building trends that is the
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principle of change the principle of
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change can be good or bad
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so if you have a neighborhood that was
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once
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the place to live and it was in high
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demand but that was 20 years ago
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those homes now need updating those type
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of things that's the principle of change
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so
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it may it may impact negatively
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the valuation or the demand for that
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property neighborhoods it can be
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micro or macro we see this with
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individual homes but we also see it with
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neighborhoods
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and towns as well number six scarcity
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supply always dictates the value
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right and then we add on number seven
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the supply of it
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so then we got supply and demand and i
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think we all know the basic principles
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of supply and demand
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you add supply and demand together and i
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think we all know the concept of supply
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and demand
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however if you have uh not a lot of
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inventory but a high demand prices go up
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if you have a lot of inventory in low
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demand
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then the prices go down if if it's kind
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of balanced and prices stay steady that
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is the principle of
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supply and demand number eight
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transferability
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it suggests that good clear marketable
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title can be transferred with relatively
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ease
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uh if it does not or it cannot be done
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with relative ease then that does
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impact the value because many times
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along with it comes court costs and
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attorneys fees and whatnot so
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that impacts the value principle of
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anticipation
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is regarding the future value value is
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created by anticipating the future user
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income of a property this is always done
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in income producing properties
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where we will relay out a a a one
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a three and a five year um budget
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one three five year revenue model those
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type of things
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and we can do that from what the the
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history or the the
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the previous years have told us and we
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use trending
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ten principle of regression and
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progression i actually this
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was this was a concept that was actually
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on my broker's exam so what's the
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difference between the two and i got it
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listed on your screen regression results
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from over improvement
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in relation to the value of an area
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progression
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is an underapproved property located in
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a more expensive area
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so in layman's terms you've always said
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you want the smallest house
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in the neighborhood you want the
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smallest house in a big neighborhood
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because the neighborhood brings up your
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values
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if you have the biggest house and the
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most improved than the newest house
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in an older area well your house
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doesn't bring up the value of the
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neighborhood what happens is you
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out price the neighborhood see the
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difference that's progression and
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regression you have to know the
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difference
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number 11 is the the principle of
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conformity this
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is a where a neighborhood is homogenous
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now you might have remembered from a
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previous video we talked about
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uh homogeneous subdivisions where pretty
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much
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everything looks cookie cutter it looks
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the same and when it looks the same
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same it provides stability
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for that housing stock that's called the
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principle of conformity
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and then the last one i added was what's
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called plottage
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value i actually had this not only on my
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salesperson's exam
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but also on my broker's exam two
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concepts here
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plottage is the process or plottage
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value
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is um we get plottage value when we
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combine
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two or more parcels of land we call that
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assemblage so let me give you an example
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let's say you have
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two pieces of property here
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this one's valued at 10 this one's
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valued at 10.
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but we combine the two when we combine
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the two that's called
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assemblage key real estate term you have
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to know
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now remember this piece of property was
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valued at ten thousand this one was at
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ten thousand when we merged them
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now the property is worth 35 000
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because it's a bigger lot so basically
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by
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by combining the two we increase the
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value by
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15 000 that added value
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is called plottage value two key real
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estate terms that you have to know
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have to know for your real estate exam
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plottage value
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and assemblage all right there you have
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it that's it for this particular video
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remember this is video number two
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of three if you want to watch the third
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video i'll have it posted tomorrow
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and it's right here in the box to my
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right if you have not
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subscribed to the channel please do so
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it helps me grow this channel i would
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appreciate it click the little circle to
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and that's it so i will see you in the
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next video
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