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Transcript
Instructor’s Manual: Basic Real Estate Appraisal, 8th. Edition Chapter 7 CHAPTER 7 PROPERTY INSPECTION AND ANALYSIS: THE IMPROVEMENTS STUDENT LEARNING OUTCOMES The major topics to be covered in this chapter include: 7.1 7.2 7.3 7.4 Planning the Building Inspection Performing the Building Inspection Understanding Construction Details Functional Utility and Architectural Styles Class Activities [Instructor: Complete as needed.] Lecture [ ] Discussion [ ] Breakout Groups [ ] Other _____________[ ] 7.1 PLANNING THE BUILDING INSPECTION To prepare for the building inspection, the appraiser should assemble the necessary tools, and plan what data to collect. Equipment Needed 1. Clipboard and pencil, tablet, or personal computer; measuring tape, laser or roller; ice pick or nail, and camera 2. Checklist or form, e.g., Fannie Mae Form 1004 (URAR); UAD standard abbreviations 3. Audio or video recorder 4. Pocket flashlight and marble, the latter to see if surfaces are level 5. Plot plans and blueprints if available What Information Should You Collect? The information needed depends upon: 1. 2. 3. 4. 5. The type of property The report format The client’s intended use of the report The value definition Any special conditions that apply. Consider the Client’s Intended Use of the Report 1. 2. 3. In most single family home appraisals, the client is the lender (or an agent of the lender). Inspections that are required range from detailed inside and outside views, to exterior inspections only (or even a desk appraisal). The appraisal form required by the lender most often determines the data requirements, (for example, URAR or 2055 forms). 7-1 Instructor’s Manual: Basic Real Estate Appraisal, 8th. Edition Chapter 7 4. Appropriate comments or ratings may be needed for: Conformity Market acceptability Compatibility with land uses Marketable physical condition 5. In certain relocation assignments, the appraiser must review the personal property to be included in the transfer. 6. Ideal features of one and two-family homes include the following: a. Safe, secure, healthful, attractive facilities b. Ease of circulation and housekeeping c. Visual & auditory privacy d. Appropriate light and air 7. e. f. g. h. Fire and accident protection Economy of maintenance Adequate sanitary facilities Accessory services Specialized data may be required in appraisals made for use in court. Consider the Value Definition 1. In market value appraisals, the inspection usually requires: a. b. c. d. 2. A detailed and accurate description of the physical structures. A rating for market acceptability. A check for conformity to building codes, deed restrictions, and zoning regulations. An analysis of highest and best use as presently improved. For other types of value definitions, the data may be more specialized. Special Conditions Special conditions may suggest a need for unique inspection details. What Value Approaches Are to Be Emphasized? The kind of data needed depends partly on the value approach(s) to be emphasized. 1. The Cost Approach requires consideration of the following significant cost issues: Design or use type Construction classification (see Section 7.3) Rating of quality Size, shape, and height Special equipment Yard or site improvements Note: Some cost estimating methods may require the dimensions of the floors, exterior walls, interior partitions, store-fronts, roof structures, etc. Take note of property condition. 7-2 Instructor’s Manual: Basic Real Estate Appraisal, 8th. Edition Chapter 7 2. The Sales Comparison Approach for single family homes typically requires the following data: a. b. c. d. e. f. g. h. i. j. 3. Architectural style Construction type Type of exterior Type of roof covering Number of stories Floor plan Quality and condition; finish and features Year built Number of bedrooms Number of bathrooms k. Total number of rooms l. Square feet of above-grade and belowgrade living areas m. Basement area n. Type and capacity of heating and cooling o. Energy-conserving features p. Fireplace(s) q. Built-in appliances and cabinets r. Any remodeling s. Parking accommodations t. Outside improvements (pools, patios, etc.) The Income Approach usually requires the data listed here: a. b. c. d. e. f. Number and types of rentable units, and number of vacant units The ratio of usable or rentable area to the total (gross) building area Quality of the tenant space Recreation areas, parking, services, and other amenities Durability of the structure and materials Physical condition of the structure and equipment 7.2 PERFORMING THE BUILDING INSPECTION The building inspection covers all important features of the improvements. [Instructor: Make reference to UAD system of abbreviations and ratings] Recording and Rating Improvement Characteristics What to Inspect (Residences) 1. Street (“drive-by”) inspection versus interior inspection 2. Importance of the agreed-upon scope of work 3. Generally inspect: 4. All finished living areas (open all doors) Accessible basements Attics that are floored and accessible by stairs Garages Yards and patios Generally, do not inspect: Areas clearly unsafe Crawl spaces 7-3 Instructor’s Manual: Basic Real Estate Appraisal, 8th. Edition Chapter 7 5. Small sheds Roofs Steep yards For other types of properties: Discuss with the client Inspect more than you believe you need to! Exterior and Interior Features 1. Inspection of exterior features: note the type, style, materials, and condition. Foundation and basement, exterior finish, windows, doors, and roof type and cover Outside structures, walks, driveways, and landscaping 2. Inspection of interior features: note the type and quality of equipment, materials and workmanship, and conformity to building codes. Number, type, and arrangement of rooms Number and type of bathrooms (UAD standard) Built-in kitchen equipment, heating, and air conditioning Insulation and any special energy-efficient equipment such as solar heating Smoke and CO2 detectors, water conservation devices, and safety glass in shower and patio doors Earthquake retrofitting as required [Instructor: Reference to UAD as to level or work completed and time-frame – Not Updated, Update or Remodeled] Rating for Appeal and Marketability Judge it by “wearing the shoes” of the typical buyer in a specific market. Marketability and appeal of a single residential property usually depends on: Construction quality of materials and finish Physical condition of structure (interior and exterior), finishes and equipment Room sizes, layout, and privacy (both visual and noise) Adequacy of closets and other storage areas Energy efficiency Adequacy and condition of plumbing and bath facilities Adequacy and condition of electrical system Adequacy of heating and any air conditioning equipment The adequacy, condition, convenience, and quality of kitchen cabinets and equipment Type and adequacy of car storage facilities Landscaping and outdoor improvements General livability and appeal 7-4 Instructor’s Manual: Basic Real Estate Appraisal, 8th. Edition Chapter 7 Evaluating Construction Quality 1. Construction quality applies to the following features of a building: 2. Basic structural integrity Materials, finishes, and special features of the building Quantity and type of fixtures, cabinets, and built-in equipment Level of overall workmanship Generally, cost-estimating guides rate quality of construction as: Good Average Fair Poor [Note: Construction (or building) quality is further discussed in Section 7.3. Refer to UAD ratings] Evaluating Physical Condition [Note: Refer to UAD condition ratings. Also, an appraiser may need to obtain estimates for the “cost-to-cure” deferred maintenance or structural defects] 1. 2. 3. 4. 5. 6. 7. Note any deferred maintenance or structural defects. Identify and report any probable asbestos-containing material, lead-based paint, or other environmental hazards (for example, methane or radon gas). Note the condition of paint, floor and wall coverings; kitchen counter tops, shower walls, hardware, equipment, and fixtures. Look for peeling paint, recent patches, moldy seams, or odors that might suggest signs of water leakage or past flooding. Describe any remodeling or renovation, and any abnormal neglect. Investigate additions, major repairs, and remodeling for conformity to the building codes. Check for any possible structural problems or foundation settling. Poor soil compaction or inferior construction may be indicated. Effective Age Though not always required, an effective age estimate describes the relative age of a structure considering its physical condition and marketability. 1. Average Age: a 30-year-old house remodeled 10 years ago, with about 80% of the original structure remaining, has an average age (based solely on the physical elements) of 26 years. Here is how that would be figured: 80% x 30 years = 24 years +20% x 10 years = 2 years Average age = 26 years 2. Effective age need not agree with average age. The former involves a judgment of market response to age, maintenance, additions, and remodeling. 7-5 Instructor’s Manual: Basic Real Estate Appraisal, 8th. Edition Chapter 7 Measuring Improvements and Preparing Drawings Most appraisals require information on the finished square-foot area of the building. Defining the Building Areas 1. Per ANSI standards living areas of detached residential structures are based on exterior measurements of the building, excluding entryways, protruding fireplace chimneys, and bay windows that do not extend to floor level. Most condominium units are measured using interior dimensions. Commercial buildings may require both interior and exterior measurements, the former to determine the rentable space. Per FNMA and FHA guidelines, the gross living area of detached homes includes only those areas that are above grade. Any level of the home that is even partially below grade is counted separately as “below grade living area.” 2. 3. 4. Measuring, Diagramming, and Calculating Techniques Attach the measuring tape to one exterior corner of the building and stretch to the next corner. Note measurement on rough sketch Continue until all sides have been measured Drawings need to use appropriate scale. Be sure the building outline is in “balance” Calculate geometric areas within the sketch and total them up Below-grade living areas should be separately calculated Unfinished basements, open porches, garages, carports, and other outside areas are not a part of the living area [Instructor: Refer to Chapter 6, Section 6.4 in the text for a review of geometric area calculations. Also refer to Example 7.1 in the text.] Taking Required Photographs Photographs are an integral part of most appraisal reports Typical attachments to the URAR form include front, rear, and street scenes of the subject property Interior photographs are typically included (often at a Client’s request) Digital cameras are the standard Photos of possible problems, key features, and evidence of condition at the time of inspection are recommended 7.3 UNDERSTANDING CONSTRUCTION DETAILS Construction Classification Systems Construction types are often classified by an A, B, C, D designation system according to their relative resistance to fire. (Some systems use 1, 2, 3, 4.) Class A buildings have fireproofed structural steel frames and reinforced concrete or masonry floors and roofs 7-6 Instructor’s Manual: Basic Real Estate Appraisal, 8th. Edition Chapter 7 Class B buildings have reinforced concrete frames and reinforced concrete or masonry walls, floors, and roofs Class C buildings have masonry exterior walls, and wood or exposed steel floor and roof structures Class D buildings have wood (or light steel) frames and roof Choice of Materials The materials selected for use in construction are usually dependent on: 1. 2. 3. Climate Availability Cost 4. 5. 6. Style Durability Building Code Requirements Typical Residential Specifications Residential structures may differ widely in materials and specifications. [Instructor: Refer to this topic in your text, or use other resource material describing typical residential features in your area.] Building Quality Typical quality standards for single-family residential homes are as follows: 1. 2. 3. 4. Good: the building has better than average design, materials, and workmanship. Average: denotes a medium-quality FHA and VA standard. Fair: refers to a minimum-quality building, with limited equipment, and plain exterior and interior; low cost. Poor: this quality is assigned to a substandard building. [Instructor: Refer to UAD quality ratings – Q1 through Q6.] 7.4 FUNCTIONAL UTILITY AND ARCHITECTURAL STYLES Good architectural design is said to be “the use of appropriate materials, in proper scale and harmony with the setting.” Design and functional utility work together. Defining Standards of Functional Utility 1. 2. Functional utility measures the livability of a house, how well it is placed on the site, the floor plan, and its comfort and convenience. In income-producing properties, functional utility is often measured by economic standards: the impact on rent and expenses. Orientation and Floor Plan 1. The orientation of the house on the site should consider: The view, sun, weather, and natural topography 7-7 Instructor’s Manual: Basic Real Estate Appraisal, 8th. Edition Chapter 7 2. The size of front, back, and side yards; amount of light, air, privacy; access to the street Parking, storage, refuse areas, and recreational facilities The floor plan should ideally provide for these features: Easy access to each room A good flow of traffic Separation of areas Cross ventilation Wall space for furniture Adequate storage space Efficient kitchen layout Convenient yard access Architectural Styles Contemporary – has low profile, flat roof and a floor plan oriented to the outdoors. California Ranch – has a low profile, with a gable roof, wide roof overhang, and heavy wood trim. Spanish – has thick-appearing stucco walls, wood beam trim, and red tile roof. Monterey or Monterey-Spanish – a modification of the Spanish style. A second-story porch or balcony is its distinguishing feature. Colonial – includes several types of early American architecture (New England, Cape Cod, Dutch, Southern, and Georgian). These are square, rectangular, stately, and symmetrical buildings, with steep, gable roofs, shutters, and dormer windows. Each locality has individual variations. The English Half-Timber – features half-timber walls with masonry or stucco between the timbers, steep-pitched roof, and casement windows. Victorian – typified by a roof with many gables and a wood exterior. Has wood trim designs around windows, roof eaves, rails, doorways, and ceilings. Often described as “gingerbread” architecture. French Provincial – also known as French Country, is a large house on a large land parcel. Has very high, steep-pitched hip roof, dormers, and a formal, balanced appearance. SUMMARY [Instructor: You may refer back to your outline, or review the following terms and concepts to summarize this session.] Important Terms and Concepts 7-8 Instructor’s Manual: Basic Real Estate Appraisal, 7th. Edition Chapter 7 Above-grade ANSI Standard Architectural stylesBelowgrade Building specifications Condition Construction classification Effective age Functional utility Inspection checklist 7-9 Living area Quality Instructor’s Manual: Basic Real Estate Appraisal, 8th. Edition Chapter 7 7-10 Instructor’s Manual: Basic Real Estate Appraisal, 8th. Edition Chapter 7 REVIEWING YOUR UNDERSTANDING [Instructor: See end of text chapter for student review questions.] STUDENT EXERCISES [Instructor: Suggested Multiple Choice and True/False questions are available to use for Chapter 7.] 7-11