FIN 181 Real Estate Appraisal

Just Say No

2011-04-25T11:33:00.001-07:00

Allen Perry
04/25/2011
Just Say No
In today’s market as a lender you may risk losing some of the value of your home as a result of default, but there can be something that can be even worse. A risk that a lender takes when making a loan is losing their asset because of drug activity on the property. If a property is found to have drug activity on the premises the government can legally take the property without any compensation going to the mortgagee or mortgagor. This may seem very harsh but Congress passed this law in order to respond to a growing drug problem in this country.
The United States Congress passed the Comprehensive Drug Abuse Prevention and Control Act in 1970. This act authorized the federal government to confiscate property used to manufacture transport, store, and dispense illicit drugs. Originally, the act was supposed to cover things like cars and boats bought with illegal drug money, but the act was later amended to include real estate in 1984. This amendment changed the riskiness for real estate properties used for drug activity because of how Congress created the punishments for being caught for drug activity. First, the seizure of the property is a civil proceeding and not a criminal one. This means that the government has the power to take one’s property even if the owner or lender of the property was not charged with a drug offense; the property is charged with the offense, not the person. Next, the government claims a right to the property as soon as the property is used for illegal drug transactions. For example, if a lender obtains a property through foreclosure that used to be a drug house they still risk losing the property if the government decides to confiscate it. Another point to the amendment is that one’s whole property is put at risk even though only a portion of the property is used for drug activity. Fourth, property of great value can be seized even if the illegal activity was minor. Fifth, the property may be seized even if the owner or mortgagee of a property is completely innocent. If you lease a property to someone and that person conducts illegal activity they expose the property to forfeiture. Lastly, the amendment states that the owner or mortgagee of a property does not have any rights to the income of the property once the property has been seized. These measures may seem harsh, but they were meant to deter individuals from making bad decisions and coming down hard on those who they catch. Now what are ways to alleviate yourself from becoming a potentially responsible party and losing your investment?
As a lender you may just decide that you will not lend to individuals trying to move into certain areas, but this may get you into further trouble. This practice goes against the Home Mortgage Disclosure Act (1975) and the Community Reinvestment Act (1978). This is considered discrimination and may add to your headaches if you pursue this tactic to prevent losing investments due to drug activity. So what will save you from losing your property in the event that drug activity is found on the premises? The way one may save their property from forfeiture is called a due diligence defense. To establish this defense the owner/lender must prove that all reasonable measures to investigate the use of the property were taken. This may be difficult to prove though especially for lenders who make loans in different geographic areas; simple ignorance to the illegal activity is not enough to prove your innocence.
As a lender for real estate losing your asset because of illegal drug activity is a risk that one has to make if they wish to participate in the real estate loan market. The United States has decided that it wants to make an example of those who have anything to do with illegal drug activity, it matters not if you knew or were ignorant to what was going on in the property. As a lender/owner of a property you must take due diligence in trying to monitor the activity on your property as well as making deals with individuals who you feel are of high moral character (this may be easier said than done). Every career has its risks and in the world of real estate this is a real issue that needs to be considered whenever you make a transaction.

Bibliography
Clauretie, Terrence; Real Estate Finance: Theory & Practice, Cengage Learning; 2010
; “Drugs & Real Estate Forfeiture”, www.realestateabc.com; 2010

Interview with Darryl Greene

2011-04-04T16:39:00.000-07:00

Allen Perry
3/28/11

Interview with Loan Officer

I had the pleasure of interviewing Darryl Greene for this assignment. Mr. Greene is a loan officer at Chase Bank in the Berkeley, Ca. He has the duty of processing applications and giving a final approval or denial of commercial and residential loans. I got a chance to sit down with Darryl Greene to see what a loan officer’s job consists of and some of the things he enjoys and dislikes about his career.

Q: When did you become a loan officer?
A: I became a loan officer for Washington Mutual in 2002. I graduated from San Jose State University in 2002 with a degree in finance. I was already working for Washington Mutual as a bank teller in college and once I graduated I was promoted to a loan officer.

Q: What is the best part the job?
A: The best part of my job is seeing the elation on an investor or an individual’s face when the application process is over and the loan has finally got approved; this is when they know the money is coming. Money has a funny way of bringing a smile to a person’s face.

Q: What is the worst part of the job?
A: On the opposite end of the spectrum, it always saddens me when I have to be the bad guy. Denying loans is always a tough thing for me to do, but it comes with the territory of holding my position.

Q: Have you ever felt particularly bad about having to deny a loan?
A: I had to deny this one newly wed couple about two months ago. They seemed like a very nice couple but they did not quite have the necessary collateral for me to approve the loan and still keep my job. The couple had their heart set on a house in Berkeley that they wanted but they did not have good enough credit for me to approve the loan at an interest rate that they could afford. It was sad because the lady started to cry. Those types of loan transactions are always hard.

Q: How has the loan process changed since the housing crash of 2007?
A: Since the housing crash of 2007 banks have started to really get back to the basics of real estate lending. This means no more loans based on fraudulent information Banks require good credit, proof of steady employment, and at least a 20% down payment to receive a loan. We also verify to make sure the monthly mortgage payments do not take up too much of a company or individual’s monthly income.

Q: Do you usually deal with commercial loans or residential loans?
A: I mainly deal with home loans, but I do work with small businesses and corporations. I would say 80% for home loans and 20% for commercial and business loans.

Q: Do you have any tips for first time homebuyers?
A: For first time homebuyers it is good to do your homework and look around to get the best loan possible. You also need to have an idea of how much of a loan you can afford. Some people get prequalification and preapprovals before they actually go through with taking out a mortgage.

Q: How has the recession affected the company’s profitability?
A: As you know Washington Mutual Bank no longer exists anymore. Our company was hit hard by the financial recession and mortgage crisis in this country; so hard that we were taken over by JP Morgan Chase. We are doing better and better with each passing quarter.

Q: What is your outlook for the next few years for real estate loans?
A: I feel that we still have a few years before we are totally out of the dark. I am optimistic that things will get better because they are starting to turn around.

Interview with Darryl Greene

2011-03-27T19:59:00.000-07:00

Reconciliation

2010-12-17T14:14:00.000-08:00

The process of reconciliation by definition is a final resolution. This process is the next to last component of the valuation process, bringing various techniques and values into a single opinion of value. Reconciliation can encompass an array of valuation processes and is used when there is no clear cut way to determine the exact method appropriate to estimate the value of a particular piece of property.
The sales comparison approach, the cost approach, and income capitalization approach are the most common combined approaching when doing a reconciliation. These three approaches will have different weighted values depending on the different variables associated with a piece of property. For example, the income capitalization approach is less significant in the valuation of one-unit homes, but will be weighted the most when you are valuating multi-tenant office buildings. The cost approach has little effect when appraising a 60 year old house, but will be weighted more when considering the value of opening up a new business as opposed to purchasing an existing site. Lastly, the sales comparison approach is the only exception because it is usually applicable in all markets, but might suffer a bit in markets where data is hard to find for comparisons.
The emphasize of any appraisal report should be tailored to the market characteristics. The emphasis of different approaches should mirror the behavior of the current market participants. If a market relies heavily on comparable listings as the determinable value, then naturally the comparable sales would become the most heavily weighted approach. If the market happens to rely on cash flows, then the income capitalization approach is best served. If the market place compares existing properties to the cost of new construction, then the cost approach is undoubtedly the most significantly weighted approach. The reconciliation approach is used when the three approaches are not completely accurate in their own entirety.
The reconciliation approach helps with accuracy when it would be difficult to value using only one of the three approaches. The final estimate is not required to have a single point estimate, but clients prefer to have an exact number. Reconciliation allows for a more precise estimate because of the additional information provided by using all three approaches. Reconciliation is a valuable tool in real estate appraisal and should be used when data is not definitive or abundant in any one individual valuation approach.

Interview with Josh Bruno Real Estate Appraiser MCD Direct

2010-12-15T00:32:00.000-08:00

Recently I interviewed Josh Bruno, a real estate appraiser located locally in Fresno, California. Mr. Bruno is an experienced appraiser with over a decade of professional experience working for MCD Direct. He has worked in real estate markets throughout the state and has extensive knowledge in the field of residential appraisal. I have been interested in the field of appraisal as a possible career and this is an exceptional opportunity to speak with a real world expert.

Bottom-line what does it take to be a successful real estate appraiser?

To find success as an independent real estate appraiser requires building a reputation among clients. Business relationships can be fickle. One bad experience can cost you what would otherwise be a lifelong client. The importance of time management for a private, fee appraiser cannot be overstated. Some days will be busy, others will be slow. It can be difficult to manage the workload without good organization and time management skills. Clients need an appraiser who is reliable. Appraisers need to be detail-oriented, or risk missing information vital to the final value opinion. Ultimately, I believe to find real financial success as an appraiser, you must find a niche. Competition in residential appraisal keeps fees low, and pressure high. Make yourself a specialist in say dairy appraisal, restaurant appraisal, etc.

What are the necessary educational and licensing requirements need to become a licensed appraiser?

In California, the Office of Real Estate Appraisers (OREA) is the agency tasked with issuing and enforcing appraisal licenses. Appraiser license requirements fall into 2 categories: education and experience. There are four levels of licensure in California. A trainee license does not require any appraisal experience, but only permits the license holder to work under supervision of another licensed appraiser. A residential license is the first level of licensure that would permit the license holder to work independently. 150 hours of education (classroom/online) covering all topics specified by the OREA and 2,000 hours of appraisal experience are required to qualify to sit for the residential test. The 15 hour national USPAP (Uniform Standards of Professional Appraisal Practice) course is required as part of the education requirement. I currently hold the certified residential license which is one step above the residential license. It allows me to appraise and residential property regardless of value or complexity. The final level of licensure is certified general, which permits appraisal of all real estate including commercial, agricultural, etc.

How did you get started in the field of appraisal?

I became interested in the profession while enrolled in a real estate appraisal course at Cal Poly. After graduation, I took a job with the Fresno County Assessor's Office as a property tax appraiser. My coursework at Cal Poly covered the education requirement and my time at the assessor's office covered the experience requirement for the residential license. I applied for the license, sat for the examination, and started work as a private fee appraiser upon receipt of my license.

Are you a commercial or residential appraiser?

The certified residential license that I currently hold allows me to appraise commercial property with a transaction value not to exceed $250,000. As you might imagine, this rules out most commercial property. While I have completed a few non-residential assignments, my day to day work is comprised almost entirely of 1 to 4 unit residential assignments.

How exactly does your report play into the lending process?

My report is an independent valuation of the mortgage collateral and is a tool the underwriter uses to make the most informed decision possible on whether or not the loan makes sense for the bank to pursue. The value of the collateral is a piece of the risk puzzle, and the bank decides what return is required to justify the risk.

Who are the majority of your clients?

My clients are almost exclusively mortgage brokers. Although a homeowner could hire an appraiser to tell them what their home is worth, the opinion is rarely worth $300.

What is a typical fee you would charge for doing a residential appraisal?

$350 is a pretty standard residential appraisal fee. Increases in complexity of the assignment, travel expenses, etc. would be added to that base fee. Any additional forms a lender may require (operating income statement for income property, etc.) would also be an additional charge.

How has the current credit crisis affected your business?

Well it has defiantly slowed down. The banks have more control now and it is all about who you know. Fortunately I know quite a few people.

Where do you see yourself in twenty years? How do you see the industry evolving?

I see myself continuing to pound the pavement. In this industry you need to be constantly evolving to fit your working environment. The field of appraisal is becoming more rigged and I expect this trend to continue well into the future.

I would like to personally thank Mr. Bruno for his time and insight into the world of appraisal. The knowledge gained through this interview has helped me to better understand the life of a real estate appraiser and what to expect should I choose this profession. I have learn a great deal and again would like to thank Mr. Bruno for sharing his knowledge with me here today.

Interview with Rosemarie Barrera

2010-12-14T20:54:00.000-08:00

Rosemarie Barrera
Realtor
Century 21 M&M and Associates

I had the pleasure of interviewing one of the most hardworking ladies in the real estate field, Rosemarie Barrera. Rosemarie is a Realtor with Century 21 M&M and Associates in Clovis, California. Mrs. Barrera specializes in residential real estate in Fresno and Madera County. She has been in the real estate business for 12 years and has won many awards for her hard work and determination. I was excited to interview a Realtor who works in the Central Valley to see what their perspective is for our residential real estate market’s valuation now and in the future, and Rosemarie was just the right Realtor to ask.

Q: Why did you get into the residential real estate business and how long have you been a Realtor?

A: “I was living in Orange County at the time and my brother’s girlfriend Rafeala suggested that I would do great in real estate. The rest is history. I was licensed in November 9th, 1999; I will be starting my 12th year in 2011.”

Q: What changes have you seen in the market since you started?

A: I have seen the market in the low times and in the high times, and now we are back in a low market.

Q: How has your marketing for obtaining listings and buyers changed over the past four years?

A: I have started to utilize Facebook, You Tube, and the general Internet more in order to obtain listings and market. It has become easier over the years to market listings since the Internet has opened up so many possibilities.

Q: Do you have different types of clients now as compared to a few years
ago?

A: No, not really. I mainly work off of referrals so others may have different clients than they are used to, but I stick with my referrals. I have been working with more banks, as foreclosures have been flooding the market.

Q: How would you describe the Central Valley residential real estate market?

A: It is great for first-time home buyers and investors. The only problem now is the lending. It is much harder to get a loan now and lenders are requiring much more documentation and inspections.

Q: How would you describe the value of residential properties now compared
to 4 years ago?

A: In 2006, Fresno and Madera counties properties were valued at the highest, and I was just waiting for the market to fall.

Q: What is the best technique for estimating property values and what method do you use most often?

A: I can’t really say what the best technique for estimating property values is for everyone, but for me I use the Comparative Market Analysis. It is a great technique when there many accurate and plentiful comparable properties to your subject property. I use the Comparative Market Analysis daily in estimating property values.

Q: What is your future prediction for the residential real estate market in the Central Valley?

A: Hopefully it will remain stable, but I believe that property values will continue to fall a little bit more, as the economy tries to recover.

Q: What qualities do you possess that make you a successful real estate
agent?

A: I am honest, reliable, know the market well, and I am a great problem-solver. If you are going to be a successful Realtor, it is imperative to be honest and know the market.

Q: Do you have any tips for a new real estate agent just entering the
market?
A: Number one is to be honest in all of your dealings. Also take as many classes as you can, learn how to value properties well and the prices of properties in the area you are working. Just learn the market and start running with a buyer or a seller.

Q: Do you have any suggestions for first-time home buyers?
Right now the prices of homes are low and so are the interest rates, so it is a perfect time to buy the perfect home!

Q: What would you suggest to homeowners who are looking to sell their homes in this down market?

A: If you must sell your home at this time, then the biggest tip I could give is to price accordingly. If you price your home to high it will just sit on the market, and will be a waste of your time. Make sure your home is appealing on the outside as it is on the inside, hire an aggressive Realtor that will market your home well, and clean the house well for showings.

Q: How are short sales and foreclosures affecting the Central Valley residential real estate market?

A: They are most of the market. This makes the prices of homes with regular sellers decrease drastically. If there is a house on a street with a regular sell listed for $150,000, a foreclosure will be listed the next day for $100,000 and will have multiple offers, while the regular sell will remain and eventually have to reduce their price to sell. We have seen this over and over again in the Central Valley, which explains the drastic reduction in prices since 2007.

I would like to thank Rosemarie Barrera for taking time out of her hectic schedule to answer my questions. We had our interview in her car on a way to a showing of one of her many listings in Fresno, which shows just how busy she really is. After interviewing Rosemarie, I now have a better understanding of the condition of the market in the Central Valley, and picked up some good tips for getting into the real estate field.

Interview with Real Estate Appraiser John Kendall

2010-12-14T16:28:00.000-08:00

John Kendall is a Certified Residential appraiser serving the Fresno and surrounding areas. Mr. Kendall is self employed and has been successfully working in the appraisal industry for over 20 years. Mr. Kendall has also offered to share some of his industry knowledge and insight with me, for which I am truly grateful.

Q: How did you get started in the appraisal business?

A: “Well, I was working a corporate job doing appraisals and around 1992 I decided to go back to school and get licensed. After completing school I opened my own appraisal business in 1993 and have been doing it ever since, so I have around 20 years of experience”.

Q: What are you licensed to appraise? Commercial/Residential/Both?

A: I am a certified residential appraiser, so I strictly do residential properties.

Q: Could you describe the methods you use to do an appraisal?

A: I usually start off by going out to inspect the subject property, and then I will do research on the subject, find several comparables, take pictures of the subject, and do more research.

Q: How many appraisals can you do in a typical day?

A: Due to all the new requirements I can only do about one or one and a half appraisals per day. Before the crash I was able to do about 2 sometimes three appraisals consistently.

Q: Who are your biggest customers/clients? Homeowner? Bank? Etc…

A: Right now a majority of my work is for Fannie Mae due to all the foreclosures and occasionally I will do appraisals for lenders who are going to be making loans.

Q: What are some of the sources you use to obtain market data to make valuations?

A: I use a lot of public records to confirm data that I obtain and also the MLS. I did use a program called Metro Service, which the name has since changed because it was purchased by CoreLogic.

Q: How did the Housing Market Crash affect your business?

A: Since the crash lenders have required that more information is needed to do an appraisal, so now it takes me about 50% longer to do a typical appraisal. Now I am getting less work done which means less money that I can charge. As far as volume of appraisals I still get a lot of work because I have been established for some time, but I have heard of many appraisers going under.

Q: what is your future outlook for the real estate market? And the Appraisal industry?

A:I believe that foreclosures will continue to dominate the market for another year or two before things start to go back to normal and we see some appreciation in the housing market. As for the appraisal industry, about 5 years ago I heard a statistic that there were about 25,000 licensed appraisers and today there are only around 14,000, so with that said I think appraisers will continue to fall as long as the market is weak.

Q: What advice could you offer someone getting into the appraisal industry?

A: I wouldn’t recommend anybody to get in the industry right now because of how tough it would be to get started in a weak market. The chances of success aren’t that great right now with everything that has happened with the real estate market.

I would like to thank Mr. Kendall for taking time out of his busy schedule to share his experience and knowledge with me on the appraisal industry. In the interview I learned a lot of useful information about the appraisal industry as well as the Fresno housing market. The advice that Mr. Kendall shared with me about getting into the real estate industry, aside from the above question, was very helpful and opened my eyes to other areas in the real estate industry. It was a pleasure to learn things from an industry professional, so again I would like to thank Mr. Kendall.

Interview: Alan Atchley

2010-12-14T15:56:00.000-08:00

Alan Atchley has been working as a real estate agent for over 25 years. He’s currently the Broker of the 6710 N. West Avenue branch at Guarantee Real Estate. As a residential real estate broker, finding the proper value of a home is essential to maintain a high level of success. I was fortunate enough to interview Mr. Atchley about valuing homes in Fresno and his thoughts on the current decline of the real estate market.

Q. What made you decide to become a real estate broker?

A. Before getting my license, I was a Fresno police officer for nearly 15 years. I got injured on the job and was forced into early retirement. I was too young to just sit around and decided to pursue another career. I chose a career in real estate because I wanted to work in a service industry where I could deal with people. I also was intrigued by the idea that every day had a different outcome. Knowing that each day would be different reminded me of my previous career as a policeman.

Q. What are your day-to-day responsibilities?

A. As I mentioned before, each day brings new tasks and challenges, which is part of the reason why I enjoy it so much. With that said, I’m the head broker in charge of this office so I’m responsible for every other realtor working under me, which includes overseeing every legal document or form that comes through the office. Along with handling legal matters, I also deal with my own clients so I’m constantly looking for new listing that best fit my clients wants and needs and I’m working as hard as I can to stay on top of the latest market information.

Q. What do you use to determine the value of a home or property?

A. The market is the ultimate determinate of a homes value. As the market goes up, a homes value will go up with it and vise versa. The market alone, however, isn’t the only thing needed to determine the value of a specific home. Using a Competitive Market Analysis or CMA helps us compare a specific house to other similar houses in that area.

Q. Are there any appraisal skills that you find helpful when valuing a home?

A. The best way for us to find the value of a specific home is by comparing it to other similar properties. The same is done through the sales comparison approach. We might also use a replacement cost if no comparable homes are found in that area.

Q. Has the recent decline of the housing market made your job more challenging?

A. It’s made it much harder. We still get a large number of people who would like to own a home. The problem, however, is finding lenders for them. Since the initial downfall of the market, lenders have dramatically tightened up, making it much harder for the average person to get a loan. It makes it very frustrating to all parties involved.

Q. Did you have to change anything (work habits/ techniques etc) since the recent decline in the housing market?

A. Because both the demand and supply of foreclosed homes have significantly increased, much more of my transactions center on that. Before the crash, we were selling many more homes and primarily dealing with a homeowner instead of a bank. It’s also much more important to stay on top of the market now. Before the decline, a monkey could sell a house. Recently, however, only the most knowledgeable have been able to maintain a high level of success.

Q. What are the primary reasons for the housing decline?

A. The decline in the housing market is due to horrible decisions made in recent years made by, both, banks who gave them out, and buyers who took these risky loans on. There were three loans, in particular, that were the main causes. These loans include: Sub-Prime, Alt-A, and Option Arm.

Q. How do u feel about the direction of home values in the near future?

A. Home values definitely aren’t going up in the next couple years. In fact, there’s a good chance of them decreasing further. The first big dip in the market was primarily from sub-prime loans. Alt-A and Option Arm loans have yet to see any dramatic foreclosure effects because banks are releasing foreclosed homes little at a time. The problem with the Alt-A and Option Arm loans is that both the mortgage and interest rates are adjustable and will soon be adjusting to higher levels that many of the buyers can’t afford.

Q. How long do you think it will take for the market to increase back to its previous level?

A. I don’t see an increase in the real estate market for a number of years. The next couple years are going to be critical times for the industry. If predictions are right and another wave of foreclosures hit in the future, it might take 8 to 10 years to fully recover.

Q. What are the main reasons that values differ in different areas throughout Fresno?

A. Values of homes differ throughout areas of Fresno because of simple economics. Homes that are in higher demand will obviously sell at a higher price. Schools play a huge roll in this. Homes in Clovis Unified School District, for example, can add $10-20,000 to a home alone. Another key factor is the homes surroundings. People want to be near basic amenities like grocery stores and shopping malls. They also want to make sure the neighborhoods around the home are safe. A common trend is for newer areas to typically be safer than older areas. With all this factored in, demand for homes typically are higher in the North Fresno/Clovis areas as opposed to the South West and East Fresno/Clovis areas. Because demand is higher, the cost to live in that area increases. This also explains the reason why homes in cities such as San Francisco and San Diego cost much more than the same home here in Fresno.

An Interview with Brandon Nisbett, BMN Building, Inc.

2010-12-14T15:48:00.000-08:00

BMN Building, Inc. has been in the Central Valley area for more than three decades, and the company's President, Brandon Nisbett has been in charge for eight years. BMN Building, Inc. has survived through many tough times in the real estate industry, including the current market downturn, and it looks promising that they will be in business for many years to come. The following is my question and answer session with Brandon about his business and his personal reflections about the market's direction.

Q – BMN has been around for quite some time, and you've been running it for eight years. How did you end up running the company?

A – “My dad and uncle started this business when they were my age. They started framing homes on the side for beer money [laughs], and trying to earn a living helping the local contractors who needed extra help. And, with the experience they both had, they eventually decided to start their own business....so they became contractors. They were building homes, and built the company into what it is today. It wasn't always called BMN Building...we used to call it Nisbett construction.”

Q – Are you a general contractor, or does your company specialize in a specific field of construction?

A – “Right now, we frame houses for Lennar Homes....you might know them by their brand of homes called Cambridge. Cambridge, as you probably know because you're a local, too, is a well-known name in the Fresno and Clovis area for new homes and tracts. We've contracted with them for about 15 years now, I believe.”

Q – Do you have a lot of employees working for you?

A – “Well, right now, we only have nine people working in the field, and three, including myself and my accountant, in the office. When the market was good, we easily had 35 people in the field.”

Q – How many homes do you build in a year?

A – “Well, again, the market has taken it's toll on us, and we're averaging a much lower build rate than five years ago. We're keeping our doors open, and we're counting every penny. But there is still potential in our business. Lennar has several tracts and they typically have two houses per tract under construction, give or take. It's steady, and pays the bills.”

Q – Do any of your positions require a license or degree?

A – “Well, I have a Masters degree in business form Fresno State, and my accountant is a CPA. But, those are the only two.”

Q – Are you optimistic about the future of BMN Building, considering what the business climate has been like?

A – “Of course...you have to be. This is my bread and butter, and I know this [market downturn] is only temporary.”

Q – Where did you start when you were first given the opportunity to work for BMN?

A – “At the bottom. I was cleaning up trash at the job site, and taking it to a dumpster. I moved up to framing later on, when I was old enough. It was a long journey, but I know every aspect of this job, and I can fill in if anyone needs me to. I've got the experience.”

Q – When the market gets better, and you begin hiring again, what will you be providing to employees, in order to stay competitive?

A – “All of our employees are paid a typical wage for the area, but we also provide health insurance and retirement, if they choose to participate.”

Q – Were there times when you thought about getting out of this business, or even selling the company?

A – “Yes, yes. It crosses my mind now and again, but this business has a lot of potential, and I'm going handle it through whatever is thrown at it.”

Brandon was pleased with how the interview went, and he's obviously excited to see what the future holds for he and his company. Having a building contract with a major nationwide homebuilder, such as Lennar, makes the future of his company bright. BMN Building is surviving in a market where others fold, and Brandon looks forward to passing on the family business to his children.

Interview with Kathy Nation, Century-21 Real Estate Agent

2010-12-14T12:22:00.000-08:00

An Interview with a Century-21 Real Estate Agent

By: Kellie Nation

Kathy Nation is a true woman of success. She has been teaching special education in the Clovis Unified School District for 25 years now. About six years ago she obtained her license to list and sell real estate. Kathy’s diligent work ethic mixed with extreme organization and love for people has contributed greatly to her success, despite the poor market conditions. In this interview, we discuss her outlook on how real estate is valued, appraised, and priced. As well, she advises me on her experiences with these dealings and which methods she believes to be the most effective.

1. How long have you been in real estate?

Six years. I went to an informational meeting at Century 21 where they talked about what the industry of real estate was like. They were starting up classes to get the license, so I took 6, 3-hour long classes each to help me study for the exam and went over all of the different aspects that would be on the exam. Then when the classes were done I had about 6 weeks to study on my own for the test. I was given sample tests to take everyday at home during those 6 weeks. I took the exam in downtown Fresno and found out within 2 days that I’d passed. Once I passed the test, I interviewed with a person at C-21 and started on right away.

2. As a realtor, what are some key qualities or skills that you had or have learned that have helped you become successful?

People skills are number one- being able to communicate with others well and having a compassion for helping them. Also, my ability to be patient with others was something that helped me. Some skills that I’ve acquired through being a realtor are being able to fill out the paper work properly and effectively, networking between loan officers, the title company, inspectors, and support people I work with, and learning what they do. For example, with a home inspector, I’ve learned how to identify which homes need a lot of work, how to value homes, and current market trends.

3. What types of sells have you dealt with?

I’ve dealt with short-sales, regular traditional sales as both the listing agent and the selling agent (though I’ve never been a dual agent), residential, land, and commercial. I’ve also done bank-owned sales.

4. When did you notice a major turn in the market? What sort of impact did it have on your success?

I first felt the decline about 5 years ago, one year after I got into the market. It seemed like it happened so quickly. My most successful years have come after the turn of the market; it wasn’t the current conditions that dictated my success, it was the amount of work I put into being successful. My philosophy is that even though the market is bad, it doesn’t mean I have to have a bad year. Many agents have had their best years in this type of market because they find a way to embrace what’s happening and to work harder to find success.

5. Have the current market conditions affected the types of listings you’ve obtained?

Yes. Properties have been less in value and lower priced. Short-sales and bank-owned properties are extremely common these days and have made up a large portion of my business.

6. What steps do you take in determining the value of a piece of property?

Well, obtaining comparables is first and foremost. Comps are the biggest way to value property. Also, inventory- how many houses are available in the price-range is a factor. If there is a lot of inventory, prices will stay low. If there’s a shortage of inventory (or demand), then you can command higher prices. Appraisals are also critical, but if you know what the comps are, you can basically know what the proper value will be. Appraisers can be kind of inconsistent. We sometimes get appraisers from out of the area that don’t know the true market here in Fresno, and I feel that can be detrimental in obtaining a true value on a piece of property.

7. Which techniques or methods have you found to be the most useful or accurate in the valuation process?

Using comparables is definitely the most useful tool. Also, understanding amenities, such as swimming pools, and being able to identify an accurate value. For example, a house that I’m looking up may need a new roof, and I need to know what the value of that would be and how much value it would add. I feel comparables are the best way to accurately do this.

8. Have you noticed any improvement in the market since the economic plunge?

Prices seem to be stabilizing (which is huge), short-sales are becoming a little easier to process, and banks are willing to fund repairs on their listings. These are all signs of moving in the right direction. Also, interest rates being at an all-time low is beneficial; it’s definitely a buyer’s market. When we had the tax incentive, that brought about a lot of buyers and potential prospects, but we no longer have that. Low interest rates and low prices are helping, though I don’t see these interest rates lasting for much too longer.

9. When do you expect the market to even out again?

It really is difficult to gage. It’s not going to be any time soon. I believe it will, but it’ll be a very slow process. There are still many homes in foreclosure and there still a lot of short-sales which makes me believe that the market crunch isn’t going to end any time soon. It will continue to be a buyer’s market for quite some time. If I had to estimate, I would say we’re at least two years away from seeing any major recovery.

10. What do you think it will take to see a continuous and indefinite growth in the market?

The housing market will need to see more regular sales, get away from short-sales, clean out the foreclosure inventory, and gain more regular-sale inventory in order to make growth plausible. As for as the economy in general, the unemployment rate is going to have to decrease and more jobs will need to be created in order to get more people working. I feel this will help consumers gain back confidence in the economy, which will result in an improved housing market.

11. What would you say to a soon-to-be college graduate, such as myself, majoring in Real Estate and wanting to become an active professional in the housing market?

I’d say, learn everything you can about the trade. More importantly, find your niche. Whether you want to specialize in residential or commercial, if you want to specialize in short-sales or in a particular price-range, or even a certain cliental. If you want to specialize in a certain area, find your niche and learn everything about it. Learn how to market yourself and be knowledgeable about the market and all inventory. For instance, if I were doing an open house somewhere, even if it isn’t my listing, I would want to know what other homes are available in the immediate area and what the prices are. Doing your homework will give you the upmost edge. Learn aspects such as financing. Try to be as knowledgeable as you can for your client and you will be successful. It’s all about service. You’re competing with 3,000 agents in Fresno, so what are you going to down to stand out above them? It’s about being able to deliver the best service you can through being accessible, prompt, and available whenever they need you.

Interviewing Kathy Nation gave me great insight as to what a successful real estate agent in the Fresno area believes about current market conditions, as well as the methods that she uses to value property. I can conclude that using a functional CMA, along with being overall educated on the market, is the most efficient way to put a price tag on any piece of property. Kathy is a very respectable individual and agent, therefore, I take her thoughts and beliefs for everything they’re worth.

Final Exam Annoucement

2010-12-13T10:23:00.000-08:00

I have to give a make-up exam on Wednesday 10 AM. Since I have to give one, I thought that I might as well open it up to everyone.

If you would like to the the final exam on Wednesday (10 AM) please send me an email.

Blog 3

2010-12-11T18:11:00.000-08:00

Interview with Angelo Alessandro, Real Estate Broker of Primus Properties
Interviewed by Kevin Howes
Understanding how to valuate residential property is a necessity that everyone should understand in the real estate industry. Angelo Alessandro is a real estate broker and owns his own firm called Primus Properties. He has been in real estate for over thirty years and he primarily does residential real estate. He carries a bachelor degree as well as one year of graduate school at California State University Fresno and also he went to law school for one year at the San Joaquin College of Law. Angelo has many listings on the MLS and is a valued real estate broker in the Central Valley. Angelo was happy to help me in my interview and was very enthusiastic to about the project.
Q: How did you get into the residential real estate field?
A: “A friend kept "hounding" me to get licensed; I had no particular interest in real estate in 1975.”
Q: What is your educational background?
A: “BA degree (CSUF), one year of graduate school at the School of Social Work (CSUF), one year of law school at the San Joaquin College of Law.”
Q: What is the most challenging and rewarding aspects of your job?
A: “The most challenging, for me, is being able to handle disappointment caused by a lack of "loyalty" on the part of some clients. One of my favorite training/teaching topics is "your friends and family are the ones that will hurt you the most". I have found this to be true--your friend or family member lists or buys through another Broker (as they certainly are entitled to do)--but it still hurts. Some agents will not take on a friend or family member--they prefer to refer them to another Realtor. You must keep in mind that this is a profession in which you may do everything right--and NOT get paid for your efforts. A doctor's patient may die, an attorney's client may lose their case--but, the doctor and attorney still get paid. There are many variables (many of which are completely out of our control) involved in a real estate transaction; a deal can fall apart even when you have done everything correctly. This is just a part of our profession; accept it and it won't be so frustrating.
On the rewarding side is the client that has been underserved by other agents and somehow comes to you for help. If you accept the case, give it all you have, and the outcome is successful, you will experience an euphoria because you have helped that client realize a dream they may have had for a long time.”
Q: What is a "typical" work day like for you?
A: “There are no "typical days" in the real estate business; that's one of the upsides to this professions. There are, of course, some routine things, for example, client contact (if they are calling you, your probably not doing your job), file review, solicitation of new business, coordination of escrows (if any), returning calls from other Realtors, reviewing MLS for new/changed listings, coming up with new ways to develop more listings/sales/loans, showing properties, putting out "fires", etc.”
Q: What are some key qualities that have helped you become successful?
A: “A key quality in the Real Estate (and any other) profession is: FOLLOW THROUGH. If you don't FOLLOW THROUGH, all of the knowledge, tools, skills, good looks, charm, won't be enough to allow you to become successful. The complaints I hear today from frustrated clients are no different than the ones that I heard in the 1970's: my agent doesn't return my calls, (s)he is never on time, I don't feel like I am important to him/her. This is why it is ALWAYS possible to be successful in this (or any other) field, IF you are willing to do what others do not do, especially FOLLOW UP. I developed a simple and effective training acronym while working with the U. S. Census Bureau: HICUP: Honesty, Integrity. Confidentiality, Urgency, and Productivity. If you follow these tenants, you will enjoy a successful career regardless of what the economy is like at any point in time.”
Q: What techniques or methods are used in valuation of residential real estate?
A: “As a Realtor, I rely on closed transactions for values (not listing prices). These data are available through the MLS and Title company data bases.”
Q: Which techniques have you found to be the most accurate in the valuation process?
A: "Closed transactions.”
Q: Are there any pros and cons when dealing with different methods for valuation of houses?
A: “If you rely on listing prices, you may under value your potential listing. An appraiser will note and take into account the reason (or reasons) why a sale was made at an "under market" price. In these cases, that sales price MAY not effect your listings price (value).”
Q: What factors are responsible for the decrease in home values in recent years?
A: “Too lax lending policies led to loan failures, thereby creating an over supply of homes on the market. Adjustable rate mortgages, which, when rates were raised, created a no win situation for the buyer and they ended up defaulting. Using home equity like a checking account which resulted in a decrease in home equity, which resulted in borrowers walking away from their loans because they could never catch up.”
Q: How has the current market conditions affected your business?
A: “My volume has decreased significantly. It is more difficult to get potential buyers approved for loans. Banks are very slow at answering offers, to the extent that some buyers just give up on the process.”
Q: When do you expect properties to regain their values or experience growth again?
A: “In my opinion, things could look better by the end of 2011. I don't think we will get back to the pre decline values because they were artificially created like stated before.”
In conclusion, valuating residential property is critical in having success in the real estate business. There are many ways to evaluate homes and everyone has their own way of doing it. The interview was very constructive and I feel like I got the answers I wanted and Angelo was very nice to offer them. I appreciate the time Angelo Alessandro gave me in regards to the interview and I was able to grasp his wisdom and knowledge about residential real estate. I know he is a very busy man and his business is important, therefore I thank Angelo for the time he spent with me for the interview.

Interview with Jeff Roberts, Co-Owner of Amli Associates Insurance of Chula Vista California (Independent Insurance Agency)

2010-12-11T14:13:00.001-08:00

Jeff Roberts, of Chula Vista California has been around the insurance industry for over 30 years. While growing up, as well as in his career path, Jeff Roberts has experienced all that the insurance industry has to offer. This has led him to a successful career in the independent insurance agency field. Being that Chula Vista is in San Diego County a few things may be different from the Central Valley. Home values as well as the cost of living are much greater in San Diego County as we have all discovered. The Roberts are family by marriage and were kind enough to share a couple hours answering questions for me, which can be seen below. Enough with the small talk, I wanted to get down to the good stuff, which began as my family and I got situated at the Roberts’ home. During Thanksgiving break of 2010 I got the chance pick Mr. Roberts’ brain as our families gathered for a traditional Thanksgiving dinner.

Q: How did you get started in this insurance business? How would I get started in the insurance business?

A: “My father has had an established independent agency for 30 years or more. So, I guess you could say that I more or less inherited it. Having a connection to, or knowing, someone who either owns or works with an established agency or company is obviously a big plus for getting started. Even if you don't, though, you'll still need to seek a position with a company or agency that can offer an initial base salary since it will take time to build a book of business from which to earn commissions. I would recommend looking for openings even before you have taken the required classes or licensing exam. Companies will often hire you and help with the expenses of getting your license. Plus, gaining working experience along with the schooling, before you become a full-fledged agent is enormously helpful.”

Q: What qualities do you look for in a potential employee? Education level, experience, etc?

A: “Well, I've found that there are two important aspects to the insurance business; sales and service. On the whole, I would say that a person's education level is not of primary concern. You'll be spending a minimum number of hours getting the education credits necessary to qualify for the license, so you do have to have the ability to fulfill this requirement. But, honestly, someone with either sales or servicing experience will likely be considered equally with someone with a college degree. Overall, personality can carry you a long way since salesmanship and the ability to deal courteously and effectively with clients is a really good key.”

Q: What is the average turnover in the insurance industry?

A: “We're a small agency and so I haven't had much experience working around a large number of other agents. However, my guess based on experience would be that overall it's probably pretty high. Speaking as an independent agent, It takes time, sometimes years, and a concerted effort to build a book of business that will allow you to be self-sustaining. If you're lucky you might inherit or be bequeathed a book of clients by a company from which to expand. Building a clientele from scratch, though, is going to require more than a nine-to-five work effort. If you're not prepared for that, it can be initially pretty discouraging.”

Q: How do you and your employees gain clients?

A: “Like any sales and service business, marketing is going to be important. Getting your name out there is arguably more than half the battle. After that, I have to say that by far the best quality of clients will come through referrals. A big reason why servicing as well as salesmanship skills are vital. You may be the best deal closer around, but you retain business and get good referrals from clients that are happy with your service. Not to say that you shouldn't try to attract the walk-ins and shoppers. But, I've found that usually you don't retain these clients at as high a percentage level that you will the referrals. Those eager to shop around will usually go to where ever the lower premium is offered which means the work put into servicing won't pay off as well.”

Q: How has the economy changed the company in regards to homeowners insurance?

A: “It hasn't appeared to me that we've seen a significant decline in the overall volume of homeowner policies. Although, we did take a significant drop in the number of new Mobile Home policies we had been writing. Really, the biggest problem the market shift has brought is in adjusting the rebuild cost estimate, which the dwelling coverage limit is based on. It's difficult trying to explain to someone why the insurance coverage estimate is coming back higher than the current market value of the home.”

Q: How does the company determine if an expansion is needed?

A: “Expanding is primarily a financial decision. In other words, do you have the capital to do it either through a loan or savings? It's going to be a risk, though, because if you make the leap and business doesn't increase that could put you in jeopardy. But, if you reach a point where the service you offer is beginning to suffer due to lack of staff or space, then the decision could be made for you.”

Q: With the increase in foreclosure rates, what percentage of your competition has closed shop from 2007 to 2010?

A: “I don't think that the foreclosure rate has really caused any insurers to leave the state.”

Q: When valuing a home for an insurance policy how do you and your employees determine the value of the property?

A: “There's a-standard software from a company called Marshall, Swift & Boeckh (www.marshallswift.com) that is commonly used to determine the rebuild cost of a property. Also, some companies supply their own rating system. It's important to remember that the dwelling coverage is based on the estimated cost to rebuild the home and not on its retail value.”

Q: Do you or your employees consult with any Real Estate Appraisers?

A: “Not really. Banks will often invoke the appraised value or the amount of their loan when requiring a specific amount of coverage. However, I like to make sure that the insured knows that by law they do not have to carry insurance more than the reasonable estimate of the rebuild cost in order to secure a loan.”

Q: When do you expect property values to increase?

A: “I'm not expecting much increase over the next few years.”

Q: With the above being said, how would you describe the strength of the insurance industry today?

A: “The insurance industry is strong, and is really tailor made to withstand economic ups and downs. It's a basic necessity in the world of business and for anyone wanting to own homes and cars and the like. The concept of pooling risk in this manner is actually kind of brilliant. I personally find people’s rejections against a mandated health care insurance odd considering we basically accept the same government mandate when it comes to something like auto insurance. Some might say we choose to own cars, but it's pretty unrealistic to suggest that for basic working people of California that a car is a luxury. Maybe for some, but not for most. The point being that insurance works best with the greatest number of participants and regulation to that effect benefits the insured and the industry.”

Before picking Jeff Roberts’ head I asked him a few questions about the insurance industry when our families got together for his mother in law, my aunt’s birthday, but none like the eleven I recently asked. I learned a lot more than I thought I would in regards to how a successful agency is run and what goes into hiring, valuing, and how they maybe hurting from the economy. It was really interesting that they use pretty much the same programs appraisers use to value property. Although there is no right or wrong way in valuing property, there are many different programs that are out there to help value property. By asking many questions I discovered experience could evolve your valuing process into such an easy process that you know before you value. This is established by many years of experience, which we have seen in class by Dr. Hansz in his valuation examples. I felt like Jeff Roberts had taken many courses in appraisal, as the terminology he used was very similar to Dr. Hansz Finance 181 course. My parents have suggested to me to open an independent insurance agency after graduation after working with Jeff Roberts for a few years and after the interview it seems to be a bright option as their agency is still doing very well. I would like to thank Jeff Roberts and his father Jim Roberts for their time and knowledge of the insurance industry.

Blog Post 3 submissions, so far

2010-12-10T23:08:00.000-08:00

I just finished commenting on the blog post 3 submissions. If you have submitted your final interview to me and I have not replied, with comments, in an email, please send me a note (I am concerned that a submission may have gotten buried in my email inbox). For those of you who needed extra time, please do not forget that the final deadline is Tuesday.

De Young Properties Interview by Logan Coughlin

2010-12-09T16:08:00.000-08:00

Established in 1974, De Young Properties continues a family legacy, which in its third generation, of helping families realize the American dream: home ownership. De Young Properties is one of Central California’s largest and most visionary homebuilders. I had the opportunity to interview Jon Ryan De Young, from De Young Properties, and ask him questions about the home building business and the valuation in which pertains to home building. Jon Ryan has been apart of this family business since the age of 10 years old. He fell in love with this business at an early age and felt like this industry was his to pursue.

Q: What was your background before you entered the home building business?

A: “I am from Fresno. After graduating high school, I went down to San Diego to go to college. I went to the University of San Diego and got my Undergraduate Degree in accounting with an emphasis in finance. After graduating, I went back to get my Graduate degree in accounting with an emphasis in finance management and real estate”.

Q: What is a routine day like for you, including, your typical duties and responsibilities?

A: “Currently I am the V.P. of Finance and working as the sales manager. I always have to be evaluating and staying on top of the market. I train our sales associates, work with our advertising department, and try to generate as many sales as I can. I usually am in the office as early as I can be and usually the last one to leave”.

Q: What skill set and personality type is best fit for a career in the home building business?

A: “As a sales manager, you have to be a people person. You are dealing with all your sales associates and potential homebuyers. Good communication and negotiating skills are critical because you are trying to sell these homes to people and try to do what is best for your customer and your company. Being positive is also important, especially when you are managing people because a negative morale can leak down to your associates. Embracing change is another trait you need to have because this business is always changing. This is a copycat business and you need to be aware of what is working and what is not”.

Q: How has the decline in the real estate market affected local home building?

A: “We have taken our focus off construction and focused more on our sales. To improve on our sales we have to better our agents, concentrate on the looks of a home, and make sure functionality is a priority”.

Q: How has increasing energy costs influenced new home development?

A: “De Young Properties have net zero homes. We have multiple floorplans designed to reduce the customer PG & E bill to zero. This option is free to homebuyers”.

Q: What market data sources do you consult with on a regular basis?

A: “We run sales reports to see what our competitors are doing. We research online or physically walk through competitor’s tracts to try to find information on what is selling. We talk to other homebuilders to learn their product or new products on their way. We also participate in webinars”.

Q: How do property values influence homebuilding?

A: “It determines the specifications of the future housing development. We don’t want to put 40,000 sq. foot homes in an area of town where the homes are past its maturity. More run down homes can affect other homes around them. We set our home building specs to how high or how low we think property values are going to be”.

Q: How do developers use property valuations in their decisions to develop?

A: “When we appraise the land, the higher the future value of a property is, then more likely we are going to develop in that specific area. We are always engaging in the sales comparison approach to see what the market is holding and how mush can we get out of it.”

Q: What strategies and development opportunities do you plan to pursue in the next five years?

A: “We have our top ten favorite development locations set for the future but that is nothing in concrete. At the moment, you have to development land on a piece-by-piece basis because this is not a buyers market at this time. You have to use a just-in-time approach because it puts less on your books”.

Q: What do you forecast in the home building industry for the next five years in the Fresno/Clovis area?

A: “Builders are going to follow the leaders, in relation to making a home more energy efficient. It will again be a sellers market, so we have to have all knowledge that is available so we can stay competitive when it turns around”.

Q: What is the most rewarding aspect of your career?

A: “Seeing the faces of our customers. Homebuilding is more than just building a product. Memories and emotions take place in a home and that brings me joy and happiness”.

I learned a lot in my interview with, Jon Ryan De Young, pertaining to the home building business and real estate valuation in the home building business. He talked to me about the importance of knowing the value of land and the future value of land. If you make a mistake there, then it may take years to rebound from an overvalued development project. The home building industry was interesting to research because it can show the future of how a city grows. I would like to thank Jon Ryan De Young for taking time out of his day to be interviewed. De Young Properties is doing good things and I expect them to grow in the future.

Exam 3 Grades

2010-12-07T16:27:00.000-08:00

If you have not received your exam 3 grade, I will be in my office (PB204) tonight from 6 PM to 6:20 PM. At 6:20 PM, I will be heading down to the SSRE meeting featuring Ryan DeYoung in room PB192 (auditorium).

No class Thursday, December 9th

2010-12-07T16:07:00.001-08:00

You guys were correct. This Thursday is a blackout day and we do not have class.

Final Exam Annoucements

2010-12-07T15:16:00.000-08:00

According to my schedule, the FIN 181 final exam is on Thursday, December 16th starting at 5:45 PM.

Good news and bad news regarding the final exam.

First the good news. The final exam may replace your lowest exam grade from the semester. For example, if you scored a 50% on exam 1 and you score a 70% on the final exam, the final exam score of 70% will replace the 50% exam 1 score.

Now the bad news. The final exam is cumulative (covers the entire course) and will be challenging. I have not finished writing the final exam but you can expect up to 100 questions with additional short answer questions and problems.

Because the exam is cumulative, you need to study the material from the entire semester. I will suggest that you do not forget about the final reconciliation chapter and video clip. This material was not included on exam 3 but will certainly appear on the final exam.

I will give a little guidance on the short answer and problem sections. Because the performance on the income approach material (direct capitalization and discounted cash flow analysis) was sub-par on exam 3, the short answer and problem section will emphasis this material. You should also be ready to write a final reconciliation given a valuation scenario.

Study hard and see you next Thursday!

Interview with Real Estate Salesman

2010-12-07T12:37:00.000-08:00

Salesperson Interview
By Allen Perry

Curtis Payne is a real estate sales person who deals in the Fresno area with an emphasis on the East side of the city. Payne is not affiliated with the N.A.R., but he is still an upcoming salesman in that area of Fresno. Payne is a 43 year old, happily married, father of two and resides here in Fresno. Payne hopes to one day become a certified member of the N.A.R. but for now is doing the independent real estate route for this field of work. Here is the interview that I conducted with Mr. Curtis Payne from the conversation we had.

Q: How did you get into the real estate business?

A: Well, it was about 10 years ago now. I needed a means to support my children and my 9 to 5 was not getting the job done so I looked into taking some real estate courses because I heard everyone was making money! Even if they just dabbled in the market, so I finished up some community real estate courses and jumped head first into the real estate game. The rest is history.

Q: What are your favorite aspects of working in real estate?

A: The obvious answer would be tat it allows me to make extra income, but to really answer that I would have to say that you could get work done outside of an office setting. I don’t like to be cooped in a miniature cubicle and being a real estate salesman allows me and actually forces me to get out in the community and interact with people. That fits my personality perfectly.

Q: What are some of the amenities that add to a property’s value in your market?

A: Most of my business is over on Fresno’s east side. This part of town is not the most prestigious area in Fresno to live in, but there are some decent neighborhoods. With that being said Fresno Pacific University is located in East Fresno and I have noticed that properties that are relatively closer to the university add to its value. Another commodity in my area is new homes, which have the most up to date cooling and heating systems with the most energy efficient technology built into the home. People like to stay away from some of the harsh weather we get in Fresno.

Q: What are amenities that decrease property value?

A: Like I said earlier Fresno’s east side is not known as the best part the city and some neighborhoods are known for heavier gang activity than others. Properties in these areas that have higher crime indexes take a big hit in value. Also, older homes that are not up to date do not attract as man buyers. The foreclosures in a neighborhood are also another dig deterrent to buyers and decrease property value.

Q: What are some of the valuation techniques that you use when negotiating the purchase/sale of a property?

A: For the most part you have to watch the market. The sales comparison approach has been very helpful to me in my short career and this usually shows me a range at which I am going to do be advising my client to bargain at. Rarely have I used any other technique to do this (laughs).

Q: Do you feel as though in the current market people are getting the right value for purchases and sales in this country?

A: I feel as though every sale that is not mad under distress or out of a con the right value has been determined. If two grown individuals fairly negotiate the terms of a deal, then no one should feel as though the right value was not found. It should not matter what the economic conditions for the country are.

Q: What is your opinion of the future housing market in Fresno?

A: In my opinion I believe Fresno will soon be one of the nation’s most newly developing cities. The city of Fresno is making efforts to rebuild downtown and other areas around Fresno. This will create jobs, which will attract new people to Fresno. These people will of course need somewhere to live and that is where I come in (laughs). But Fresno’s stock is on the rise and many housing opportunities will come from this boom.

Allen: Thank you for your time
Curtis: No problem, my pleasure

Blog Post 3 Deadline Extension

2010-12-06T11:56:00.000-08:00

The deadline for blog post 3 is tomorrow but I can see that many of you could use an extension. Therefore, I am extending the deadline to December 14th.

Remember, you will submit your paper to me by email in Word format (please include all exhibits). After I reply to you, then your can email the paper to your interviewee and ask him or her for their permission to post to the paper on our class blog.

Interview questions

2010-12-05T00:00:00.001-08:00

1. Why did you get into the residential real estate business?
2. How long have you been a real estate agent for?
3. What changes have you seen in the market since you started?
4. How has your marketing for obtaining listings and buyers changed over the last few years?
5. Do you have different types of clients now as compared to a few years ago?
6. How would you describe the central valley residential real estate market?
7. How would you describe the value of residential properties now compared to 4 years ago?
8. What do you think the best method for estimating a value of a property is, and what method do you use most often?
9. What is your future prediction of the real estate market in the central valley?
10. What qualities do you possess that make you a successful real estate agent?
11. Do you have any tips for a new real estate agent just entering the market?
12. Do you have any suggestions for first-time home buyers?

Interview with a realtor

2010-12-01T11:18:00.001-08:00

1. How long have you been in real estate?

2. As a realtor, what are some key qualities that have helped you become successful?

3. What types of sells have you dealt with?

4. When did you notice a major turn in the market?

5. Have the current market conditions affected the types of listings you’ve obtained?

6. What steps do you take in determining the value of a piece of property?

7. Which techniques or methods have you found to be the most useful or accurate in the valuation process?

8. What are the pros and cons of the different methods?

9.Have you noticed any improvement in the market since the economic plunge?

10. When do you expect the market to stabilize again?

11. What do you think it will take to see a continuous growth in the market?

Exam 3 Result

2010-11-30T14:17:00.000-08:00

I will pass back exam 3 with answer key at the beginning of Thursday's class. Please arrive on time if you want to review your exam.

The class average was 73% and the median was 74%. The grades ranged from 100% to 53%.

On Thursday we will use a program called Argus which is a sophisticated discounted cash flow analysis program. I can tell from grading exam 3 that DCF is a weakness. I think everyone needs to review the DCF materials below before Thursday's class.

Investment Problem Video Clips
Investment Problem Instructions (1, 2, and Homework)

Investment Problem 1 Steps 1-7

Amortization Table

Investment Problem Spreadsheet

Investment Problem Print Out with Notes (pdf file)

Investment Problem Video/Audio Clips:

Introduction to the Investment Problem

Step 1

Step 2-3

Step 4-5

Step 6-7

Today's On-line Class

2010-11-30T09:30:00.000-08:00

Please login to http://www.my.dimdim.com/gazarian at 3:30 PM today. When you login, please use your first and last name. We will cover some material for Thursday class.

Also, please view the view clip below before next Tuesday's class.

Final Reconciliation Video/Audio Clip (27 min)

Don't forget, DimDim requires the most recent version of Flash or you may have audio problems. See below for instructions.

Updating Your Computer's Version of Flash: DimDim Requires Most Recent Version

As of 10/20/2010, the latest version of Flash was 10.1. To check the version of Flash on your computer, goto http://www.adobe.com/software/flash/about.

To update Flash, goto get.adobe.com/flashplayer/otherversions. This site will ask you if you are using a PC or Mac, then just follow the prompts. Thank you for updating Flash. Students without the most recent version of Flash may have audio problems when using DimDim.

Note that the Google Chrome browser automatically updates with the most recent Flash version.

Interview Questions

2010-11-29T21:35:00.000-08:00

Interview with a Realtor

1.)When did you get into the realty business?
2.)How did you get into the realty business?
3.)What are some of your favorite things about dealing with real estate?
4.)What is the current market like in the central California real estate market?
5.)What are some of the hot-spots in the area that you deal in?
6.)What are some of the techniques that you use to value a house?
7.)What are some of the amenities that add value to the properties in your market?
8.)What are some of the amenities that decrease value to the properties in your market?
9.)What is your opinion of the future market in the area that you deal in?

Blog 3 Questions

2010-11-27T11:45:00.000-08:00

1. How did you get into the residential real estate field?
2. What us your educational background?
3. What is the most challenging and rewarding aspects of your job?
4. What is a "typical" work day like for you?
5. What are some key qualities that have helped you become successfull?
6. What techniques or methods are used in valuation of residential real estate?
7. Which techniques have you found to be the most accurate in the valuation process?
8. Are there any pros and cons when dealing with different methods for valuation of houses?
9. What factors are responsible for the decrease in home values in recent years?
10. How has the current market conditions affected your business?
11. When do you expect properties to regain their values or experience growth again?

Blog Post 3

2010-11-24T16:01:00.000-08:00

John Kendall
Kendall Appraisal Services
Residential Real Estate Appraiser

Blog Post 3

2010-11-23T20:14:00.001-08:00

Stefan Fackelmann

Dipl.-Wirtsch.-Ing. (FH)

Sachverständiger für Immobilienbewertung (surveyor for real estate appraisal)

Kaufmann der Grundstücks- und Wohnungswirtschaft (IHK)

1. What is your educational background

2. Why did you decide to get in this field?

3. Are there some legal prequisites you had to fulfill to become a real estate broker in Germany?

4. What kind of individual (skills and personality) is best suited for this career?

5. What are your major responsibilities?

6. Which method do you use to appraise the property? Do you use a special program?

7. Which market data do you use to estimate the value of a property?

8. What are the fees you demand?

9. Which are the most reasons the customers want you to appraise their property?

10. Would you choose this career again?

Exam 3 Announcement

2010-11-21T16:36:00.000-08:00

Exam 3 is this Tuesday and will cover Chapter 17 through 23 (we will save chapters 25 and 26 for the final). The exam format includes multiple choice, short answer, and calculation problems. Please bring pencils, eraser, and Scan-tron.

Informational Interviews: Comments

2010-11-20T15:33:00.000-08:00

Don't forget that at least 1/3 to 1/2 of your informational interview questions should be related to real estate valuation. I think we will find that property values and valuation skills are important to every aspect of the real estate industry.

You may conduct your informational interview in person, by phone, or by email. I would recommend that you ask your interviewee for their format preference. Also, I would suggest that you try to physically meet with your interviewee to make a more personal connection (dress professionally and be on-time!). If you conduct the interview in person or by phone, you must ask the interviewee if you may record the session. If they do not agree, do not record under any circumstances. You must take good notes.

Please tell your interviewee that you will email your final version of your interview to him or her. In this email, you will ask your interviewee for their permission to post the interview on our class blog (https://sites.google.com/site/fin181hansz/). Please make sure that they know this is a public blog. We will not post any interviews without the interviewee's permission. Don't forget you could include photos of the person, their office, or business logo with their permission. Also, please consider any other appropriate visuals including tables, chart, graphs, maps, and other photos.

You may do some minor editing of the answers but do not alter the intent or content of the answers. If some questions were misunderstood, inappropriate, or the interviewee simple preferred not to answer the question, you may exclude question from the interview. It will depend on the length and nature of the questions and responses but it looks like 10 to 15 questions are most appropriate. Remember, you may need to exclude a a couple questions.

Please do not forget to write a good introduction and conclusion to your information interview. The introduction should introduce the person you are interviewing (at a minimum the person's name, company, affiliation, industry they work in, years in the business, and the geographic region they typically cover). The final paragraph should summarize and synthesis your findings from the interview with respect to valuation in your interviewee business and industry. Also, do not forget to thank your interviewee in person and in the paper itself (the introduction or most likely the conclusion).

For this assignment, please email me your informational interview in a Word file attachment by the assignment due date. I will grade the assignment and return it to you by email. You can then send your paper to the interviewee and once you get their permission, you can post it on the course blog. Good luck and enjoy the assignment. This is a good opportunity to meet someone in the real estate industry.

Blog 3 Questions

2010-11-20T10:22:00.000-08:00

1. What is your educational background?

2. How/Why did you get started in this field?

3. What are your duties/responsibilities? What is a typical day like for you?

4. What kind of skills and personality is the best fit for a career in the home building business?

5. How has the crash in the real estate market affected local home building?

6. With high-energy costs, what do new homes offer that older ones may not in terms of energy efficiency?

7. How does DeYoung obtain market data in the area?

8. Are there any major development plans for the area in the next 5 years?

9. What do you foresee for the future of home building?

10. What is the most rewarding aspect of your career?

Blog 3 Questions

2010-11-19T20:34:00.000-08:00

1. What made you decide to get into the residential real estate field?

2. What are you major responsibilities?

3. What is the most challenging and rewarding aspects of your job?

4. What skills would you say an individual must have to be successful in this field?

5. What is the importance of accurate valuations in residential real estate?

6. Who is primarily responsible for determining a property’s value?

7. What techniques are used in valuation of residential real estate?

8. Where is the information for this method is primarily found?

9. What are the advantages and disadvantages of the techniques?

10. What are alternate methods of valuation if the desired information is not available?

11. What factors are responsible for the decrease in home values in recent years?

12. When do you expect properties to regain their values or experience rapid growth again?

Mexico Property Valuation

2010-11-18T16:50:00.000-08:00

Valuation of Property in Mexico

Allen Perry

An appraiser must assess value on any property that they are assigned to. Much of the time the valuation of a location type is very similar; sometimes other factors will designate a need to use unusual techniques for a subject’s valuation. These circumstances are called special property types and an appraiser must be aware of this. Things that can make a subject property different can be lack of relevant comparable properties or subject properties located I different countries (where other factors can affect value as compared to the US). For instance, valuation in a country like Mexico can be very different then how you would value a property in the United States. For example, construction, land, building, and maintenance cost are extremely lower than US prices. This needs to be considered in the valuation. Another aspect that needs to be weighed in is the state of the infrastructure around the subject property. Overall, the value ad appeal of land and property comes down to three key factors: location, local infrastructure, and local amenities (Buying & Selling Real Estate in Mexico).

Location is a major issue that affects value in Mexico. This is similar to factors that affect value in the United States, but it is especially important to consider when doing a valuation of a property in Mexico. There are many areas in Mexico that are very remote with little to zero infrastructures. This will obviously lower the value of a subject property. In most markets in Mexico the values of properties are increasing on a year-to-year basis, but they have not risen as fast as US and European markets (Buying & Selling Real Estate in Mexico). Mexico is a very big country and not all land development is feasible. Location is a major factor when valuing a property in Mexico, but it is not the only issue that must be considered when conducting a property valuation in Mexico. The local infrastructure around the subject property is an issue that needs to be assessed when valuing a property.

Things like roads, airports, and public services are luxuries that citizens of the US take for granted, but these things are not common place in all areas of Mexico. When doing a valuation appraisal in Mexico an appraiser must take into account the fact of if the subject property is located in an area where there is a proper infrastructure in place. As the years progress, the infrastructure in Mexico is gradually getting better, but an appraiser must remain cognizant of areas in Mexico where there is little to no infrastructure. Subject properties located in these areas should be reflected in a valuation report. Once an appraiser considers both the location and local infrastructure adjustments for the property there is another element that needs to be considered.

In the United States, just about anywhere a subject property is located there are basic amenities that come with the property and that the property is near by. In Mexico, this is not always the case. An appraiser must be aware of the subject property’s amenities. Does the property have access to running water and a sewage connection? Is the property near any schools and hospitals? These are questions an appraiser must answer these questions before they place a value on a property. If a property is not equipped with running water and sewage then the value of the property will be significantly reduced. Also, if the property is not located near any hospitals or schools (for residential properties) then a subject property will have less value then a property that does. If an appraiser does not account for these issues in a valuation, then they will be seriously mistaken.

Land/property valuation in Mexico can basically be adjusted for through location, local infrastructure, and local basic amenities. If a subject property does not have access to roads, airports and public services like a police force then the property will have a drastic decrease in value. A property also needs to have basic amenities working in the property as well as near the subject property. Many people living in or near the numerous Indian communities do not have access to basic amenities (Mexico: Between a Rock and a hard place). An appraiser needs to be aware of this when valuing a property in Mexico. Most factors of land valuation are the same in the United States and in Mexico, but these few factors must stay in an appraisers head when they are doing a valuation of a property.

References:

; Buying and Selling Real Estate in Mexico, http://www.mexperience.com/property/buying-selling-real-estate-in-mexico.hip

Ioffe, Karina; Mexico: Rock & Hard Place: The Joys & Malcontents of Modernization and What it means for the local population, www.mexconnect.com/articles30390-mexico-between-a-rock-and-a-hard-place-the-joys

Agricultural Appraiser

2010-11-17T21:35:00.000-08:00

1. What are the qualifications of becoming an agricultural appraiser? How did you get started in this field?

2. What is the importance of a professional real estate appraiser?

3. How should I proceed if I want to enter into the agricultural appraisal business?

4. What is the average age of an agricultural appraiser? How high is the turnover?

5. What types of services do you offer as an agricultural appraiser?

6. How do you feel about agricultural land prices at this time?

7. Is there anything that threatens the value of agricultural real estate?

8. Has the crash of the residential and commercial real estate market influenced agricultural property values?

9. How do inflationary forces impact agricultural property values?

10. What aspect of agricultural real estate seems to be suffering the most?

11. What is the future outlook for this career?

Today's On-line Assignment

2010-11-16T12:09:00.000-08:00

Please review the material below and study the five video/audio clips. The Investment Problem is a discounted cash flow (DCF) analysis, or referred to by appraisers as yield capitalization. The model presented below goes all the way to after tax cash flows and after tax equity reversion so this model is valuing an investor's equity investment. We will tweak this model in class to value the property (Vo). While you are studying this model, think about how you would change this model to value the overall property (hint: it is much simpler).

Investment Problem Video Clips

Investment Problem Instructions (1, 2, and Homework)

Investment Problem 1 Steps 1-7

Amortization Table

Investment Problem Spreadsheet

Investment Problem Print Out with Notes (pdf file)

Investment Problem Video/Audio Clips:

Introduction to the Investment Problem

Step 1

Step 2-3

Step 4-5

Step 6-7

Also, don't forget. You are invited to the SW Regional Economic and Housing Market Analysis by Christopher Hecker this Wednesday starting at 6:30 PM in room PB 192. Hope to see you there!

2010-11-15T17:03:00.000-08:00

Informational Interviews

2010-11-12T13:32:00.000-08:00

Please post a draft of your Informational Interview questions on this blog by next Thursday. (Don't do the actual interview, yet, just post the questionnaire that you have developed.)

Good mix of interviewees so far. We have two homebuilders so we are covered in this area. However, we do need to find a residential appraiser, commercial appraiser, and tax assessor. Also, if you have contacts out of the Fresno area (say, Germany for example), see me about your topic.

Blog 3

2010-11-10T19:24:00.000-08:00

Brandon Nisbett, CEO - BMN Building

Blog 3 Logan Coughlin

2010-11-10T17:25:00.001-08:00

Home builder, Jon Ryan DeYoung

DeYoung Properties

Residential Real Estate Agent- Rosemarie Barrerra C21

2010-11-09T22:12:00.000-08:00

Today's Assignment

2010-11-09T16:21:00.000-08:00

me: Today's assignment: Please view video/audio clips Income Approach Part 3 (23 min.), Income Approach Part 4 (26 min.), and Income Approach Part 5 (40 min.). Links to the video/audio clips are on our course websitehttps://sites.google.com/site/fin181hansz/.

me: Also, don't forget that we do not have class this Thursday due to the Veteran's Day Holiday.

me: On Wednesday, November 17th starting at 6:30 PM the Gazarian Center and Student Society of Real Estate will be hosting Christopher Hecker, President of Sierra Communities. Mr. Hecker will be presenting his Regional Economic & Housing Market Analysis in PB 192. Students are invited to this event! (Also, I have read Chris's report and it is very impressive.)

me: Have a good Veteran's Day!

Also, thanks to Kelsi for helping me figure out that you cannot see the "Public Chat" announcements in DimDim if the announcements were posted before you logged on.

Blog 3

2010-11-05T10:44:00.000-07:00

Residential Broker-Scott Leonard President, CEO, Principal Broker Guarantee Real Estate

Blog 3

2010-11-04T16:51:00.000-07:00

Insurance Broker Jeff Roberts of Chula Vista California (San Diego County)

1. How did you get started in this field? How would I get started in this field? (I ask the two since I know how he got started by taking over his fathers business)
2. What qualities do you look for in a potential employee? Education level, experience, etc?
3. What is the average turnover in the industry?
4. How do you and your employees gain clients?
5. How has the economy changed the company in regards to home owners insurance?
6. How does the company determine if an expansion is needed?
7. With the increase in foreclosure rates, what percentage of your competition has closed shop from 2007 to 2010?
8. When valuing a home for an insurance policy how do you and your employees determine the value of the property?
9. Do you or your employees consult with any Real Estate Appraisers?
10. When do you expect property values to increase?
11. With the above being said, how would you describe the strength of the insurance industry today?

blog 3

2010-11-04T16:44:00.001-07:00

residential broker Alan Atchley

2010-11-01T14:46:00.000-07:00

Gas stations are one of the most common types of commercial real estate. Gas stations are also one of the most difficult to appraise. There are a handful of ways in which to appraise a gas station. One such way is by gathering comparable sales and valuation analysis of similar commercial properties and applying it to your gas station. It also may involve a different analysis including income, going concern, construction cost and equipment.

Gas stations of the early 20th century were vehicle oriented facilities offering gas, oil, repairs, and accessories. These early gas stations were often decorated with domed roofs and columned fronts. By the 1950’s gas stations evolved into the current standard which is functional, two-bay concrete block stations with pumps in front of the store. Later, gas sales and car repair became separate functions of gas stations. In the 70’s and 80’s gas stations were increasingly sided on large lots near highway onramps. With these new changes, older gas stations began abandoning gas sales in favor of service-oriented facilities. Improving on the standard, the trend in recent years has been to develop convenience stores or C-Stores that offer little in car service but more of an array of small, on-the-go amenities like food, drinks(i.e. AM PM, Extra Mile). According to national petroleum news, between 1994 and 2000, sales volume in C-Stores grew by 86 percent, versus a lower growth rate of 46 percent in the retail gas industry as a whole. With a variety of different type of gas stations, an appraiser must be able to value any one of these.

The sales comparison approach is the most useful method when analyzing the older two-bay gas stations. This approach is most effective because the value is in the land and comparisons are generally made on the basis of price paid per square feet of land. Some of the important differences between a subject property and a comparable property that has sold in the past 6 months may be such things as traffic volume, exposure, access, competition and the actual contribution of the building. It would also be helpful to know comparable properties tank capacity and whether or not contamination has occurred.

The cost approach is applicable in the valuation of a recently constructed gas station. When implementing the cost approach, a majority of the cost is incurred for equipment and allocation of the value to different components (i.e. personal property and real estate).
A third analysis considers the value of the going concern for a particular site. A gas station might have value beyond that reflected in its real estate and equipment. The valuation of the going concern is made by analyzing historical data and perspective income along with current operating costs.

Lastly, the income capitalization approach is not favorable but can be applied to the appraisal of gas stations. The goal is to make comparisons from rental agreements of other gas stations to derive a net income for a subject property. Gas station leases are often accompanied by strict vendor agreements that require current tenants to buy petroleum products exclusively from the landlord. Most of the time, such real estate leases are part of a larger relationship making rental information and the capitalization approach less useful when appraising gas stations.

The number one priority of an appraiser when appraising a gas station is to determine the correct analysis approach for the current subject site. It is also important that the appraiser and the client be clear as to which method of valuation will be used and what exactly is to be valued. The appraisal of gas stations can become intricate and convoluted if the right approach is not carefully taken.

http://cstorevalue.com/id35.html
http://www.svinc.net/port_gasstation.html
http://www.zengelassoc.com/valuation/special_use/gas_station.html

See Information on RESIG Scholarship Opportunities

2010-11-01T12:50:00.003-07:00

http://www.gazarian.info/2010/11/message-from-john-mahoney-resig.html

Please visit the link above for more information.

Property Appraisal in the United Kingdom

2010-10-28T14:57:00.000-07:00

Around the globe, where private property exists, there typically are real estate professionals that are in demand to perform the various duties required for every process in a real estate transaction. More specifically, real estate appraisers are in need to help in the valuation of those properties, so that the transactions are traded at a “trustworthy” price. The United Kingdom is among those countries where its citizens are allowed to buy and sell real estate, and therefore valuation methods are in place to assist in many real estate transactions. In the United Kingdom, there are five methods in determining the value of a piece of property.

In comparing the United States to the United Kingdom, private property rights differ slightly. In the United States, people have a right to own their own property in a fee simple absolute ownership, which is the highest form of ownership that can be attained besides “allodial” ownership which is "land which is absolute property of the owner, real estate held in absolute independence, without being subject to any rent, service, or acknowledgment to a superior.” In the United Kingdom, however, the land is not owned by any individual, rather it is owned by the “Crown.” This does not mean the Queen herself owns the land, but means the royal hierarchy passed down through generations are the owners of the land. This “Crown” ownership does not allow all individuals to own property as a freehold estate, but does allow people to purchase the trust in the property along with certain rights of usage and length.

Even with the difference in ownership types between the United States and the United Kingdom, there is still a need to determine what a home or parcel-trust might sell for in a market; thus, there still exists a real estate market in the United Kingdom. The five methods in use for property valuation in the United Kingdom are: 1.) comparable method, 2.) investment/income method, 3.) accounts/profits method, 4.) development/residual method, 5.) contractor's/cost method. Each of these methods share steps or processes that appraisers use in the United States.

In the United Kingdom, the “comparable method” is similar to the sales comparison approach in the United States, which uses previous sales data. The “investment/income method” is a way of determining cash flow for rental properties, but is dissimilar to the income approach because it uses a type of comparison method. The “accounts/profits method” is used for certain properties such as hotels and restaurants, by taking a three year average of income statements arriving at an appropriate yield. The “development/residual method” is used for development, and also for vacant land. And finally, the “contractor's/cost method” is similar to the cost approach, and is used for construction costs, insurance loss, etc.

Even though there are differences in the trading of property between the United States and the United Kingdom, there remains a need for appraisers and appraisal methods for both countries. The need of appraisers is proof that there is indeed a market for real estate . Each country has slight variations in their methods, but in the end both have a structured process for the valuation of property, regardless of how it is owned.

Real Estate Appraisal

http://en.wikipedia.org/wiki/Real_estate_appraisal

Queen Elizabeth

http://www.funtrivia.com/askft/Question86458.html

Webster's Dictionary

Mineral Rights Appraisal

2010-10-26T23:18:00.000-07:00

Mineral rights are the legal rights to produce or explore the resources below the surface of land. Resources below the land include tungsten, zinc, diamonds, coal, oil, natural gas, geothermal, gold, silver, uranium, copper, nickel, palladium, aluminum, iron, lead, molybdenum, and platinum (Appraisal Institute). The ownership of mineral sources was at first granted to the individuals or organizations that owned the surface. Though, once profitable mineral production became possible the ways in which mineral rights are recognized became much more complex. The property titleholders had both "surface rights" and "mineral rights" (Appraisal Institute). This complete private ownership is known as a "fee simple estate". “Surface rights” and “mineral rights” are separate; many mineral right owners retained their mineral rights long after their surface rights were sold (Ellis, T.R.). Once retained, mineral rights can be owned forever. Today, mineral rights are able to be leased, sold, bequeathed and gifted out to one or more individuals and/or businesses, while the original land owner still holds the surface rights of the property (Appraisal Institute). Since a fee simple estate owner is able to sell his or her mineral rights at any time, he or she will most likely want to get the most accurate and highest price for the mineral interests. In order to acquire an accurate market value, an appraiser with mineral rights valuation skills will likely be hired. My blog post will discuss the basic concepts, approaches, methods, and procedures an appraiser would use to determine a value for a property with mineral interests.

Mineral interest properties are appraised with the same basic appraisal process described in USPAP and appraisal manuals, except for the addition of specialized sections that document details of specific items of regional and local geology, mineral deposits, mineral product market details, mining costs and methods, and geological controls (Paschall, Robert). The planning step of the appraisal process tends to be more important in the appraisal of mineral properties than conventional real estate appraisals because of the variety and magnitude of material that is essential for credible mineral appraisals (Ellis, T.R.). An exact definition of the value being pursued is very important, for the forms of ownership of a mineral interest property is typically very complex (Paschall, Robert). Depending on the stage of exploration and development of the mineral interest property, the cost approach, sales comparison approach, and income approach can all be used to determine a value, although the methods typically will not produce the similar value estimations.
The cost approach concentrates on the money spent on the property, plus a discount or premium depending on the situation. The value of a mineral interest property is reliant on the mineral products it is capable of generating and by what the marketplace will pay for the mineral products in question (Ellis, T.R.). The sales price of the mineral product is the basis for recovering the exploration and development costs, operating costs of removing minerals from earth, and any further processing that may be needed to get the mineral product to the customer. The value of the mineral deposits on property in question should materially exceed the costs of discovery and development of the mineral, if not than the mineral interest will not be profitable, which could cause appraisal value to be lower (Ellis, T.R.). Using the cost approach, appraisers can determine the current value of past expenditures on mineral interest properties, although the cost approach is rarely applicable due to the fact that presently most mineral interest properties are not in the exploration stage (Paschall, Robert).
The sales comparison approach tries to calculate what a likely buyer is willing to pay for the property, based on the investigation of other transactions in the marketplace. Mineral interest properties are typically in a direct search market, which is a market where individual buyers and sellers must seek each other out directly. Mineral property markets often include irregular participation, relatively high-priced, and nonstandard real properties (Paschall, Robert). Because of the lack of total transactions and the specialized property needs of purchasers, such as type of mineral, mineral resource size, and type of mining knowledge and skill required, it does not pay most brokers to seek profits by specializing in such a geologically and mineral interest diverse market. Most transactions in mineral property markets are actually negotiated mining leases with a type of owner financing or mineral production royalties (Paschall, Robert). Many sales of mineral deposits used for comparison will usually require at least as much research and on-site examination as the subject mineral property to accurately identify, measure, and account for any difference that may affect value (Paschall, Robert). This can make using the sales comparison approach even more difficult since most mineral property buyers and sellers will not willingly share the detailed property data, nor allow an appraiser on their property to examine the site to make reliable adjustments.
The income approach focuses on the cash flow generated by the property, such as the income being produced from mining and producing the minerals. The first step in the income approach to appraise a mineral property is to determine the general supply and demand situation of the market for the mineral goods to be manufactured. The next step would be to estimate the quality and quantity of mineral reserves available to be mined, treated, and sold. After these steps than a reasonable expected gross income estimate can be calculated (California State Board of Equalization). A primary economic factor used to appraise oil, gas, and hard minerals is the discount rate used to convert the future value of an income stream to a present day value (California State Board of Equalization). The discount factor typically used to appraise properties includes the base discount rate, risk adjustments, and the ad valorem tax rate. By using the income approach formula such as: FI = R X P, where FI= Future Income (est. reserves), R=Rate, and P=Price, mineral interest value can be determined. In most mineral appraisals there are two separate calculations, one for working interest, and one for non-working interests (California State Board of Equalization). The calculations are done for each year into the future, until the appraisal reaches its economic limit and the appraisal stops (California State Board of Equalization). The income approach is primarily the method of appraisal used in the mineral industry to estimate value due to the fact that mining operators only work in mining in anticipation of getting paid.
Electing between the cost approach, sales comparison approach, or income approach depends on what stage of exploration or development the mineral interest property has reached. The cost approach is best suited for exploration properties, because future cash flow is unknown. The sales comparison approach is applicable at any stage as long as there are accurate, arms-length transactions. The income approach is useful once the property has reached early development or late-stage exploration. Mineral interest appraisals are one of the most difficult appraisals there is due to their complexity and information needed to determine an accurate value. Selecting a knowledgeable appraiser who spends more than 50% of their time on mineral right appraisals will be the best individual in determining a value for a mineral interest property (Mineral Business Appraisal).

Sources:

Appraisal Institute. The Appraisal of Real Estate. 10th Edition, Appraisal Institute, 1992.

California State Board of Equalization, Assessors Handbook AH560, Valuation of Mines and Quarries, 1973.

Ellis, T.R., 2001a, U.S. and International Valuation Standards- The Future: Preprint # 01-161, SME Annual Meeting, Denver, Colorado, February 26-28, 2001, 10 pp.

Mineral Business Appraisal. USPAP in Mineral Appraisal. http://www.minval.com/firreauspap_mineral.html, 1999.

Paschall, Robert, H., Appraisal of Construction Rocks, American Institute of Professional Geologists, 1993.

Pictures:
file:///C:/Users/aarons/Pictures/mineral-rights.gif
data:image/jpg;base64,/9j/4AAQSkZJRgABAQAAAQABAAD/2wBDAAkGBwgHBgkIBwgKCgkLDRYPD

Dairy Farms

2010-10-26T17:03:00.000-07:00

Dairy farms are one of the more difficult special use properties to perform a valuation for. This is because of the limited market dairies have and the many different aspects you need to consider when appraising dairies. “Appraisers generally utilize three common approaches in estimating the market value of real property. These approaches are known as the Sales Comparison Approach, Cost Approach, and Income Approach” (Appraisal Report).

In valuing dairy properties the Sales Comparison Approach is most often used. This is typically due to the availability of recent market sales in the subject area. The Sales Comparison Approach is considered to best demonstrate the current market value of dairy properties (Appraisal Report). In the Sales Comparison Approach there are elements of comparison for each type of property. In dairy properties these elements of comparison are often areas of concern. Each subject property must be analyzed to identify the dairy’s capacity, i.e. animal units, and the compliance of the dairy with all regulations such as zoning, state water quality, air quality, special use or conditional use permits, and Williamson Act Status. Examples of other elements of comparison are physical attributes of the facility, which include; milk barn capacity, freestall barns/corral capacity, feed storage facilities and support structures(San Joaquin Valley Ag Lenders Society). Once these elements of comparison have been established, and comparable properties selected, this approach will help to indicate a value for the subject property.

The Cost Approach helps provide market value of the real property, estimates the replacement cost to build the facility, and accounts for depreciation due to the age and the physical deterioration of the improvements of the dairy. “This approach for estimating the market value of a new or relatively new dairy can be used when the land value is well supported and the improvements are new and suffer only minor depreciation” (Appraisal Report). In California it is becoming very difficult to obtain a permit to build a new dairy facility because of the environmental regulations. Because of this the Cost Approach is not the best indicator in valuing a dairy.

The Income Approach is generally not used when appraising dairy properties. “Market prices do not correlate with the income earning capabilities of the land and as such the income approach is not considered applicable to dairy properties in the valuation process” (Appraisal Report).

Appraisers must be specifically educated in the appraisal of dairies because it is a highly specialized field. “The dairy industry is facing continued challenges in its operations, expansion and relocation activities including the ability to construct new dairies. The dairy industry brings many jobs to an area and allows associated businesses to grow and flourish. This creates further conflict between local communities, governments and the environmentalists” (Dairy Farm Operating Trends). Therefore, it is important that an appraiser is highly informed of the different aspects that need to be considered when appraising dairies.

Sources:

An Appraisal Report of the”: Vander Weerd Property San Bernardino County, CA.

31.50 Acres of Irrigated Cropland w/ Dairy Facility Improvements. Date of Appraisal: January 15, 2009. By: The Ranch Co., Inc.

Frazer Frost, LLP. (2009). Dairy Farm Operating Trends: December 31, 2009.

San Joaquin Valley Ag Lenders Society. (2001). 2001 Dairy Short Course: AgTAC

Facility-Tulare, CA

Mini-Strorages

2010-10-26T16:46:00.001-07:00

Brian Ferguson

A special-use valuation is used when appraising the property of a business with a specific use that differs from its usual market value. Finding a mini-storage valuation, like most special-use properties, can be quite complex. It requires focused market research to determine historic, current, and future occupancy rates, rental rates and expenses. The majority of mini-storages have high occupancy rates and can be one of the most profitable properties to own.

It’s difficult for appraisers to separate the business entity, or management of the property, from the income produced from the storage units. This is because the facility usually has live-in managers who provide 24-hour services. Because of this, an appraisal of the going concern is often used. The value of a going concern depends on the income it is able to generate. The income to the business can be separated by deducting the income necessary to produce a market rate of return to the real estate. The income to the business can then be capitalized at an appropriate rate to produce the business' value. This amount coupled with the value of the real estate is the value of the going concern. (http://www.erassoc.com/GOING.htm)

Most mini-storage properties are valued based on comparable sales, income, and expenses. Mini-storages don’t always have standard sizes but most facilities offer similar sized products. Their sales are usually compared on a price per unit or price per square foot basis, and adjustments are made to comparable sales if the units are considerably different. Adjustments are also made to the special amenities of each property, such as fencing, security systems, door alarms, and climate control of individual units, as well as the individual properties location, age, design, access, and quality of construction.

While finding the value of a specific-use property like a mini-storage, the necessary variables to calculate are gross operating income, operating expense, net operating income, and cap rate. The steps taken to calculate each variable are as follows:

1. Determine the Gross Operating Income of the property by subtracting the vacancy rate from the gross potential income. (GPI-VR)

2. Determine the Operating Expenses of the property, which include management, legal and accounting, insurance, janitorial, maintenance, supplies, taxes, utilities, etc.

3. Subtract the operating expense from the gross operating income to find the Net Operating Income.

4. Divide the net operating income by the Cap Rate. The cap rate is the rate of return that the property would return to an owner at a specific value. It has a direct relationship to the value of a business in that the desired cap rate represents the return made based on the price of the property.

Example: Gross operating income=100,000, Operating expenses=20,000,

Desired Cap Rate =10%

· (GOI) 100,000- (OE) 20,000= 80,000 (Net Operating Income)

· (NOI) 80,000/ (CR) .1= 800,000 (Value of Property)

Sources

· http://realestate.about.com

· http://www.appraisalarticles.com

· http://www.argus-selfstorage.com