introduction to residential appraisal
DESCRIPTION
Lesson 1: An Introduction to Residential Appraisal. Appraise homes and Commercial buildings in California.TRANSCRIPT
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Real Estate Appraisal
Lesson 1: Introduction toResidential Appraisal
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Introduction
Appraisal: Act or process of estimating the value of property; an opinion of value.
Appraiser services:estimating the value of propertyconsulting reviewing work of other appraisers
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Appraisal Practice
Distinguish between the purpose of an appraisal and the use of an appraisal.
Purpose = information appraiser is to provide
Use = how client will use provided information
Purpose vs. use
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Appraisal Practice
Lenders qualify both borrower and property when deciding whether to make a mortgage loan.
Appraisal assists lender in qualifying the property
Tells lender how much property can be sold for if foreclosure becomes necessary
Lender’s use
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Appraisal Practice
Staff appraisers: Employed by organization to perform appraisal services related to organization’s business.
Fee appraisers: Employed by many different clients.
Types of employment
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Real Estate Financing Industry
Industry is divided into primary market and secondary market.
Primary market: Individual borrowers and lenders.
Most residential real estate financing is provided by depository financial institutions: organizations that accept deposits from account holders.Examples: banks, credit unions, savings
institutions.
Primary market
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Real Estate Financing Industry
Secondary market: Loans are treated as investments, like stocks or bonds.
Primary market lenders sell loans to secondary market agencies, who package loans into mortgage-backed securities.
Mortgage-backed securities are then sold to investors.
Secondary market
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Real Estate Financing Industry
Secondary market agencies: Established by the federal government:
Federal National Mortgage Association (Fannie Mae)
Government National Mortgage Association (Ginnie Mae)
Federal Home Loan Mortgage Corporation (Freddie Mac)
Secondary market agencies
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SummaryAppraisal Practice
– Purpose of an appraisal– Use of an appraisal– Real estate financing industry– Depository institution– Appraisal– Secondary market agency
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Real Estate
Property: Anything that can be owned (real or personal property).
Real estate: Defined in the Uniform Standards of Professional Appraisal Practice as: “an identified parcel or tract of land, including improvements, if any.”
A parcel or tract of land is identified by a legal description.
Definitions
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Real Estate
Imagine a parcel of land as an inverted pyramid.
Ownership of land includes everything above and below the surface.
Inverted pyramid
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Real Estate
Improvement: Something that has been added to or become part of land in some way.
Many improvements referred to as fixtures.
Fixtures: Man-made attachments to real property.
Items that were once personal property.Now attached to or connected with real
property in such a way that they have become part of real property.
Improvements and fixtures
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Real Estate
Four common tests to distinguish a fixture from personal property:
1. method of attachment2. adaptation of the item3. intention of the parties4. relationship of the parties
Fixture tests
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Real Estate
Method of attachment:Is the item attached to the realty?Is the item movable?
Adaptation of the item:Is item specially adapted/designed to realty
in some way?
Fixture tests
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Real Estate
Intention of the parties:Did person who installed item intend it to
become part of real estate?
Relationship of the parties:Did person who installed item own the
property, or was she just tenant?Installed by tenant: personal property.Installed by owner: real property.
Fixture tests
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Real Estate
Trade fixtures: Items installed by tenant in connection with business operated on leased property.
Considered property of tenant.May be removed when lease expires.
Fixture tests
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SummaryAppraisal of Real Estate
– Property– Real estate– Improvement– Fixture– Trade fixture
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Real Property Interests
Real property: Defined in Uniform Standards of Professional Appraisal Practice as:
“the interests, benefits, and rights inherent in the ownership of real estate.”
Real estate refers to land itself (plus improvements).
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Real Property Interests
Complete bundle of rights in real property:right to possessright to useright to enjoyright to encumberright to willright to sell or transfer
Bundle of rights
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Real Property Interests
Appurtenance: Something that goes along with ownership of the land.
Examples: air and water rights, some types of easements.
Appurtenances
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Real Property Interests
Two main categories of interests in land.Estate: Real property interest that
includes possession.Encumbrance: Real property interest
that doesn’t include possession.
Types of interests
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Types of Estates
Two categories of estates.Freehold estates: Include title to property.Leasehold estates: Estate holder is
tenant.
Two categories of freehold estates:fee simple estateslife estates
Freehold estates
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Freehold Estates
Fee simple estate is most commonly appraised interest.
Includes entire bundle of rights.May last forever.All partial/fractional interests are created
from this estate.
Fee simple
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Freehold Estates
Life estate lasts only as long as a particular person is alive.
Life tenant: The holder of the life estate.Measuring life: The life upon which a life
estate depends.Future interest: The ownership interest
that will begin when the life estate ends.
Life estate
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Freehold Estates
Example: James donates his farm to Children’s Aid Society, retaining life estate for himself in the farm.
Life tenant? Measuring life?Holder of future interest?
Life estate
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Freehold Estates
Future interest may be classified as either:Estate in reversion: A future interest
held by grantor or her heirs.Estate in remainder: A future interest
held by someone other than grantor or her heirs.
Future interests
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SummaryFreehold Estates
– Freehold estate– Fee simple– Life estate– Future interest
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Types of Estates
Leasehold estate: Interest held by tenant under lease agreement.
Four types:tenancy for yearsperiodic tenancytenancy at willtenancy at sufferance
Leasehold estates
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Leasehold Estates
Tenancy for years: Leasehold estate that lasts for any fixed term.
Term may be a specified number of years, months, weeks, or days.
Tenant’s interest ends at end of lease term.
Also called estate for years or term tenancy.
Tenancy for years
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Leasehold Estates
Periodic tenancy: Lease automatically renews itself at end of rental period until either person gives notice to terminate.
Example: month-to-month lease.
Periodic tenancy
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Leasehold Estates
Tenancy at will: Tenancy with no specified termination date and no regular rental period.
Does not have to involve rent at all.
Tenancy at will
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Leasehold Estates
Tenancy at sufferance: Arises when tenant stays on property after tenancy has expired.
Not true estate; tenant has no legal right to possess property.
Tenancy at sufferance
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Appraisal of Leaseholds
During lease term, property owner retains title and has right to use and possess property when lease ends.
This interest is called a leased fee.
Leased fee
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SummaryLeasehold Estates
– Leasehold estate– Tenancy for years– Periodic estate– Estate at will– Tenancy at sufferance– Leased fee
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Real Property Interests
Encumbrance: Nonpossessory interest in real estate.
Encumbrance holder has claim to property, but no right to use or occupy.
Two categories:financial (liens)nonfinancial (easements and private
restrictions)
Encumbrances
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Lien Classifications
Voluntary lien: Granted by property owner.
Involuntary lien: Arises through operation of law.
Voluntary vs. involuntary
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Lien Classifications
General lien: Attaches to all real estate owned by debtor.
Specific lien: Attaches only to specific piece of debtor’s property.
General vs. specific
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Nonfinancial Encumbrances
Nonfinancial encumbrances affect both title and use:
easementsprofitsprivate restrictions
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Nonfinancial Encumbrances
Easement: Nonexclusive right to use someone else’s land for particular purpose.
Easement holder has nonpossessory interest.
Burdens owner’s title.
Two types of easements: easement appurtenanteasement in gross
Easements
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Easements
Easement appurtenant: Burdens one piece of land for benefit of another piece of land.Dominant tenement: Land benefited by easement.Servient tenement: Land burdened by easement.
Runs with the land.Cannot be severed from the land.Involves two tenements.
Easements appurtenant
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Types of Easements
Easement in gross: Benefits particular individual/organization rather than parcel of land.
Personal right.Not tied to ownership of land.No dominant tenement.
Easements in gross
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Nonfinancial Encumbrances
Profit: Property interest that allows holder to use someone else’s real estate.
Includes right to take something away from land.
Usually involves renewable resources.
Profits
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SummaryLiens, Easements, and Profits
– Encumbrance– Lien– Easement– Easement appurtenant– Easement in gross– Profit
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Nonfinancial Encumbrances
Private restrictions restrict how owner may use her own property.
May include:size/style of buildings/additionslandscapingparkingcertain activities on property
Private restrictions
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Private Restrictions
Covenants, conditions, and restrictions: Restrictions created and recorded by residential subdivision developer.
All subsequent buyers/owners of subdivision lots bound by CC&Rs.
Other owners in subdivision or homeowners association can sue to enforce.
CC&Rs
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Government Restrictions
Government may affect private ownership through:
eminent domaintaxationpolice power
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Government Restrictions
Eminent domain: Power to take private property for public use.
Government must pay property owner just compensation.
Eminent domain
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Government Restrictions
Common taxes that affect real estate are general property taxes and special assessments.
General property taxes: Apply to all real estate; based on value of real estate.
Special assessments: Apply to properties within assessment or improvement district; used to pay for public improvements.
Taxation
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Government Restrictions
Police power: Government’s power to make and enforce regulations for protection of public health, safety, and welfare.
Basis for zoning and land use regulations.
Examples:building codesenvironmental protection laws
Police power
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SummaryPublic and Private Restrictions
– Private restrictions– CC&Rs– Eminent domain– Taxation– Police power