Download Basic Real Estate Appraisal - Lecture Outline for Chapter 07

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).
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4.
Appropriate comments or ratings may be needed for:
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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:
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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.
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Instructor’s Manual: Basic Real Estate Appraisal, 8th. Edition
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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:
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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:
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Areas clearly unsafe
Crawl spaces
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5.
Small sheds
Roofs
Steep yards
For other types of properties:
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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.
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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:
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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
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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:
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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:
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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.
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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
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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
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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
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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
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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
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A good flow of traffic
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Separation of areas
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Cross ventilation
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Wall space for furniture
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Adequate storage space
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Efficient kitchen layout
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Convenient yard access
Architectural Styles
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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
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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
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Living area
Quality
Instructor’s Manual: Basic Real Estate Appraisal, 8th. Edition
Chapter 7
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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.]
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