APPRAISAL GUIDELINES (CONTENTS) - PDF

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APPRAISAL GUIDELINES (CONTENTS) SECTION I: (DATA BOOKS) 1. Comparable Sales Report 2. Land Analysis and Soil Rating Technique 3. Adjustment Derivation and Application SECTION II: (APPRAISAL FORMS) 1. Appraisal
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APPRAISAL GUIDELINES (CONTENTS) SECTION I: (DATA BOOKS) 1. Comparable Sales Report 2. Land Analysis and Soil Rating Technique 3. Adjustment Derivation and Application SECTION II: (APPRAISAL FORMS) 1. Appraisal Form TC Appraisal Format Requirements SECTION III: (APPRAISAL REVIEW) 1. General Remarks 2. Review Procedures 1, 2, 3, 4, 5, 6, 7, 8, 9, General Procedures a. Fee Appraiser Meetings Prior to Beginning Assignment b. Dual Reports c. Return of Unacceptable Reports d. Updating Reports in Review e. Salvage Values f. Identification of Remainder as Buildable Lot g. Airspace Lease Review h. Access Point Appraisal Review i. Surplus/Excess Property Review j. Summary Preparation and Submission k. Verbal Approvals, Photocopies and Faxed Summaries l. Revised Reviews and Summaries m. Summaries Submitted with Supplemental Acquisitions n. Reviews and Summaries for Uneconomic Remnants SECTION IV: (GENERAL) 1. Appraisal of Access Points 2. Appraisals for Other Agencies a. Appraisal Requirements for Commonwealth of Kentucky 3. Appraisal of Billboard Signs 4. Airspace Agreements 5. Surplus and Excess Properties 6. Valuation of Leasehold Interests 7. Tenant-Owned Realty 8. Manufactured Structures 9. Appraisals for Court Testimony 10. On-Premise and ID Signs 11. Temporary Easements 12. Permanent Easements 13. Uneconomic Remnants 14. Excess Purchased 15. Preparation and Interpretation of Project Reports 16. Right of Way Cost Estimates 17. Special Estimates 18. Asbestos, Hazardous Materials and UST's 19. Plan Revisions 20. Personal Service Contracts 21. Federal-Aid Ineligibility Notifications 22. Property Owner Interview and Informational Booklet 23. Damage Analysis 24. Personal Property and Fixtures 25. Guidelines for Compensation on Oil and Gas Wells SECTION V: (LEGAL) 1. Answers to Questions on Condemnation Law from the Division of Right of Way and Utilities by Office of General Counsel EXHIBITS 1. Completed Three Signature Summary 2. Completed Four Signature Summary (Revised Reviews) 3. Completed Summary with Uneconomic Remnants 4. Completed Appraiser Performance Analysis 5. Completed Project Report 6. Completed Standard Invoice (30% Payment) 7. Sample Letter Returning Appraisals to the Appraiser for Correction 8. Completed Comparable Sale Forms 9. Topographical Map Showing Location of Comparable Sales INSTRUCTIONAL GUIDELINES FOR THE COMPARABLE SALES REPORT GENERAL REMARKS The purpose of the Comparable Sales Report is to provide the data, analysis, studies and narrative explanations necessary to support the appraiser's reasoning and conclusions reached in each of the appraisals. The importance of the Comparable Sales Report cannot be overemphasized since it is a critical part of each appraisal. It is the foundation of any appraisal assignment, and the stability of the value conclusions built upon it depends on the care and thoroughness of the appraiser assembling it. To assist the appraiser in preparing this report, Forms TC 62-20B, C, and D are furnished for compiling the data concerning each comparable sale used. All items appearing on the forms applicable to that particular sale will be completed in the space provided or upon supplemental sheets. The sales data form the nucleus of the sales report. Analysis and interpretation of this data serves as the basis for making comparison and adjustments for differences between the sales and subject parcels being appraised. The appraiser may develop analyses in the form of paired sales, studies, graphs, charts or tables, etc. This should explain the reasoning regarding various factors of differences such as time increase, location, topography, size, contributing value, depreciation, etc. By including sufficient analysis and explanation in the Comparable Sales Report, the appraiser can eliminate repetitious explanations within each appraisal by simply referring to the Comparable Sales Report and the page number on which his documentation appears. The initial effort in preparation of a Comparable Sales Report should consist of a detailed review of plans and cross sections, and a field inspection of the individual parcels affected. Particular attention should be given to the characteristics of the neighborhood; the type, age, trends, uses, etc., of the properties within the defined area of both project and neighborhood. At this point, the appraiser should be fully aware of the general demands of the project relative to the scope of data required and any unusual circumstances or anticipated problems. These should then be discussed with the review appraiser. An outline of items that should be included in the Comparable Sales Report is shown on the following pages. Section I - Page 1 Market Data Assemblage: The appraiser begins this phase of the appraisal process by assembling all relevant data available, including sales of properties comparable to those affected by the project, current rental information, current building and site improvement costs and all other data which may influence the values of properties to be appraised. Comparable Sales Report: The market data assembled is then compiled and submitted as a separate report, and incorporated by reference into each appraisal. This report shall be submitted in a protective side binder with project identification, the name of the appraiser and the date of compilation visible on the exterior of the report. Supplemental Reports: In some instances, the appraiser may elect to submit a supplemental report to a comparable sales report previously prepared for another project or section in the area. This may be an option when the previous analyses remain applicable. The use of a supplemental report must have prior approval of the review appraiser. In situations where a proposed project involves few parcels, the review appraiser may accept the sales data attached to the individual appraisal reports. The attachment must include sufficient information to provide the reader an adequate description of the area, neighborhood and project. The supplemental data must include sales map, noting project and sales location, and the appraiser's certification of comparable sales data. 1. Letter of Transmittal - This letter addressed to the Director of the Division of Right of Way should include the date of submission, project identification, number of appraisals in the assignment to be based on the comparable sales report, breadth of analysis, the approximate number of sales inspected and/or considered for use, and the actual number of verified comparable sales included in the report. It should also state the type of appraisal reports being submitted, i.e., self-contained, summary, or restricted. 2. Table of Contents - This item is self-explanatory and should include the page numbers on which various items in the sales report appear. 3. Appraiser Certificate - Sign and date Form RW USPAP Certification - Although the Cabinet believes that its certifications are sufficient, in order to ensure all USPAP requirements are met, it is strongly suggested that the certification used in Standards Rule 2-3 be included as a part of the sales report. 5. Limiting Conditions - This shall include contingencies and limiting conditions that would apply to all sales and analysis included in the report and to all appraisals within the project. Special conditions that apply to individual parcels should be included in the appraisal of the particular parcel. 6. Summary of Comparable Sales - Some type of exhibit is required which summarizes the details of all comparable sales. This can be most beneficial to the appraiser in the analysis of the sales and selection of sales used in the appraisals. Items which should be included, but not limited to, are as follows: Sale number, grantor, grantee, location, sale Section I - Page 2 date, sale price, size or area, overall unit price, unit price for buildings, land and site improvements. 7. Project Analysis - Under this heading, the appraiser has the opportunity to describe the type of highway, access restrictions and how it will affect the properties both generally and specifically. The appraiser should describe the point of beginning, how the project traverses the neighborhood(s) and the end of the project. Station numbers may be used to pinpoint special problems. The appraiser may discuss problems that may be encountered regarding access, entrances, proximity or other items considered pertinent to the assignment. 8. Area and Neighborhood(s) Analysis - Under this heading, the appraiser should discuss those economic factors applicable to the project and appraisal assignment. These may be population changes or shifts, employment, agricultural production, water supplies, utilities, sanitation and waste disposal, police and fire protection, etc. It is suggested that the appraiser be concerned only with pertinent information that will add support to the opinion of value and compensation developed. The appraiser should discuss in sufficient detail the neighborhood(s) traversed by the project, so as to provide the reader with an understanding of the type of neighborhood as the appraiser sees it and its economic relationship to the area or county. The appraiser should also discuss the type of zoning in the project area and the degree of enforcement. If the zoning may have an effect on the value of parcels on the project, either before or after the acquisition, the appraiser should summarize those applicable classifications as to minimum and maximum requirements for area, setback and sideline clearances and probability of obtaining variances. Although a variety of published materials may be considered, it is suggested that the appraiser be concerned primarily with pertinent information that will add support to the opinions of value developed. In making his analysis, the appraiser must take into consideration the Uniform Relocation Assistance and Land Acquisition Policies Act of 1970, Title III, Section 301, paragraph 3, which states in part: Any decrease or increase in the fair market value of real property prior to the date of valuation caused by the public improvement for which such property is acquired or by the likelihood that the property would be acquired for such improvement, other than that due to physical deterioration within the reasonable control of the owner, will be disregarded in determining the compensation for the property. Section I - Page 3 9. Appraisal Documentation - In all appraisal assignments, the appraiser must support opinions and/or reasons for various adjustments made between the comparable sales used and the subject properties being appraised. The source(s) of costs upon which opinions will be based must be shown. Occasionally, it may be necessary to support certain reasoning with adjustments peculiar to a specific parcel being appraised. Adjustments for such items as market conditions (time), location, size, and improvements and damages may be common to several appraisals. The appraiser can save time and avoid repetition by including the basis for these recurring adjustments in the narrative portion of the Comparable Sales Report. The following are items considered necessary in most appraisals. A. Time Adjustment (or lack of) - Any change in economic conditions between the date of sales and the date of appraisal must be accounted for by the appraiser. A time increase factor may be developed by one or more of the following methods. 1. Back-to-Back Sales: Refer to a comparable sale(s) that has sold two or more times in the last few years and show the average increase in value on an annual/monthly basis. The appraiser must be careful to exclude from the difference any improvements made to the sale(s) between the sale(s) dates. Also, the appraiser should consider the effect any motivation of the buyers or sellers may have had upon the transactions. Further, the appraiser must be certain that a transition to a higher and better use was not the cause of increase. The analysis should consider the rate of increase on vacant vs. improved properties and also the relative price range of the sale(s) in its relationship to the percentages. 2. Paired Sales Analysis: Where resales of the same property are few, the appraiser may list two or more sales that are similar in characteristics, location and highest and best use at the time of sale, each selling at a different date. After adjusting for differences between the sales, a trend of increase would be indicated. The appraiser should also consider motivation and the possibility of transition for these sales, the same as set out in Item 1 above. 3. Other Data Sources: Published indices may be used to support rates of appreciation or depreciation in real estate values. Lacking any of the objective sources for change in market conditions, the appraiser may quote professionals knowledgeable in the market area (real estate agents, developers, lenders, etc.). Since personal perception is inherent in the marketplace, these subjective sources should only be used to support other documentation, or for application of nominal changes. The more sources quoted, the stronger the support. A variety of methods can be used to document a time increase, or the lack of one. Through analysis and correlation of data, the appraiser may find that market prices Section I - Page 4 for different types of properties change at different rates. If this is the case, the appraiser should use factors that are appropriate for each specific property type. If the appraiser determines that market conditions are static and no adjustment is warranted, an explanation must be provided. Comparable sales data over five years old is generally unacceptable. A thorough explanation must accompany the application of any older data to justify its use. It may be necessary to use older data in the appraisal of unique and special use properties when more current data is not available. B. Financing - If atypical or creative financing is reflected in the sales price, the appraiser may find it necessary to develop procedures for adjusting some of the data. Terms of sale may indicate a cash equivalency adjustment is warranted if significant advantage accrues to one of the parties. C. Location - In most market areas, some locations are more desirable than others, and generally, the sales occurring in each of these locations will reflect this difference if properly analyzed. Location adjustments may be supported by an analysis of land values in the various areas of the project based on bare land sales or on properly allocated land values. The sales used should be adjusted for time and other factors so that only location is considered in the net difference. Also, the appraiser should discuss highest and best use in the context of developing trends within the various sectors of the project. The appraiser may then show the reasoning for a range of adjustments for location in those areas of the project related to the comparable sales. A chart or graph may be useful to the appraiser in analyzing this data. With a range of adjustment established, the appraiser may then refer to this analysis in the appraisal. D. Land Adjustment - Since no two properties are alike, some adjustment for differences in land characteristics may be necessary. Usually, the appraiser can provide a reasonable analysis for adjusting the differences on residential lots, and commercial and industrial land. In view of this, some sort of analysis should be made by the appraiser to explain the reasoning and procedures to be used in the appraisal report. The greatest problem concerns agricultural land because the ratio of land classes and the proportion each class has to the total area must be considered in the adjustments. In eminent domain appraisal reports, adjustment for this difference is considered a topographical adjustment. To assist the appraiser in making these adjustments, an example of a land class rating system developed for use on agricultural land is shown at the end of this Section. E. Improvement Adjustments - As with land, very few properties have buildings and special land improvements alike, and adjustments need to be made for factors of difference such as area, quantity, quality, age, condition, etc. Section I - Page 5 The cost source used to classify the improvements should be discussed as to its validity in the project area and its relationship to allocation, depreciation and contributing values which will serve as a basis for adjustments in the market approach and possibly the depreciation used in the cost approaches. Under this heading, the appraiser should discuss the method used to allocate the contributing value of buildings and special land improvements on the sales and how adjustments for differences will be made between the sales and subject properties. E. Curable Functional Obsolescence - When a property suffers a functional deficiency caused by the acquisition, and that deficiency can be cured, a corresponding adjustment should be reflected in the after value. If the adjustment is cost-based, the appraiser must show the source(s) from which the costs were obtained and unit prices for each item considered in the adjustment. Generally, these are obtained from local businesses or contractors. A compilation of these costs may be presented in the Comparable Sales Report and applied in the appraisal report as needed. AFTER VALUE DOCUMENTATION: It is not the intent of these guidelines to dictate methods to be used to document the appraiser s opinion. The following discussion regarding factors to be considered in the after value is given to assist the appraiser in determining the type and extent of documentation to be included in the Comparable Sales Report. In essence, after values must be supported in the same manner as before values. The same criteria for data selection and inclusion apply equally to both situations. For instance, if the Sales Comparison Approach is applicable, then market data of similar types of properties located in similar neighborhoods with similar characteristics and property line setbacks should be secured and analyzed the same as the data used in the before value. If the income producing characteristics of a subject property change, it is necessary to include rental data in the Comparable Sales Report which reflects the changed characteristics. Cost data will usually not change dramatically from the before value to after value. However, vacant land sales of different sizes or shapes may be needed for comparisons to subjects with reduced size, altered shapes, etc. If it appears that some subject properties may be damaged by the acquisitions due to cuts, fills, landlocking, proximity, etc., the adjustment for these deficiencies may be supported by paired sales analysis or indications derived from analysis of damaged sales. (SEE ALSO DAMAGE ANALYSIS) Section I - Page 6 USE OF COMPARABLE SALES FORMS TC 20B, C AND D As previously stated, the comparable sales and the analyses are a critical part of each appraisal assignment and the appraiser must be thorough in securing and presenting factual data concerning each sale included in the report. Three forms have been designed to assist the appraiser in assembling the factual data. TC 62-20B is for residential, commercial and industrial properties. TC 62-20C is for rural tracts and TC 62-20D is common to both the residential and rural forms. Each form should have all lines and spaces filled in. Those items missing from a sale are to be marked none and those not applicable as NA. Be sure to give as many pertinent details as possible on each item. Careful, descriptive words save space. The forms are basically self-explanatory; however, the appraiser should include all details pertinent to the appraisal reports, thereby providing support for all conclusions. When the report is opened at a comparable sale, Form TC 62-20D should be on the left side and TC 62-20B or C on the right side
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