Reconciling the Estimates

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Reconciling the Estimates




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Reconciling the Estimates

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Reconciling the estimates

Remember that the whole purpose of this is to come up with an estimated value for the property.

We want to correlate the values indicated from the different approaches we used and to come up with a single value.

“Reconciliation is the method of bringing together all of the data and analyses into one final estimate of value.”

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Reconciling the estimates

The reliability of the data is crucial, garbage in, garbage out

A wide spread in the estimates from the different approaches indicates a strong possibility there were mathematical and/or technical errors made.

In theory, all of the approaches should lead to the same estimate. But, for this you need;

The markets to function perfectly

The appraiser to function perfectly

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Reconciling the estimates

That’s not likely to happen

The market is the market and sometimes things don’t happen the way you’d expect. I think this is especially true with land and land values

It is important to strive for perfection but don’t let that get in the way of being honest; don’t manipulate data beyond its limits; one paired sale isn’t the same as multiple and so on

At the end, don’t forget to ask yourself, if the property is really worth the value stated!

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Highest and Best Use

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Highest and Best Use

Be sure to appraise as vacant land first

Many buildings simply do not add value to the property, even if they are new. Tobacco barns in areas that quit growing tobacco, grain bins in a cow-calf area, things that were build w/o considering the demand or very specialized for one operation

If there are improvements that add value then evaluate as improved property;

The key is ‘do the improvements that add value to the property’

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Highest and Best Use

Remember that it is the market and market conditions that are going to drive what will be HBU

HBU is based on potential use, not actual use; remember that buyers pay based on the potential

There are transitional areas,

eg

., development is moving in the direction but not there yet. This means there can be an interim value and then a terminal value

There can be speculative uses

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Highest and Best Use

An appraiser working in a transition area has to be very careful

Another aspect is if improvements are needed for HBU,

eg

. Tiling

There are 4 basic question that need to be asked to determine HBU

What uses are legal?

What uses are physically possible

For uses meeting 1 and 2, which ones are financially feasible,

ie

, give positive net income or non-monetary benefits

Of these uses, which one produces the greatest return or benefit

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Highest and Best Use

Legally possible;

Be sure to do a title search looking for restrictions;

Transfer of development rights; very popular in some states and areas

Life estates

Conservation easements

Restrictive covenants

Downzoning

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Highest and Best Use

Physically possible;

What are the characteristics of the property; soils, slope, frontage, water,

Characteristics will control what should be considered for potential uses

If there is a defect can it be corrected and will it be? If the defect is going to be corrected then the appraiser has to be sure and include the cost for the correction

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Highest and Best Use

Financially feasible options;

What will be the net income from a use, if positive then it should be considered

It is very important to remember recreational and home properties; these will yield nonmonetary benefits that have to be considered

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Highest and Best Use

Don’t be ridiculous in how far you go with this analysis

The appraiser has to know the neighborhood and the potential but it is not their job to examine everything (vegetable production, U-Pick-Ums, stables, etc.) All possible uses that might result in higher income but that isn’t the point of what the appraisal is trying to determine

Appraiser has to use judgment

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