tag:blogger.com,1999:blog-34778590030637919582024-03-13T06:07:26.140+07:00Penilaiannoerhilmanhttp://www.blogger.com/profile/07501293211100270892noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-3477859003063791958.post-2712931765964001252007-11-02T23:30:00.000+07:002007-11-02T23:33:03.274+07:00Income Capitalization Terms<dl style="text-align: justify;font-family:courier new;" ><dt><a name="Capitalization"><span style="color: rgb(0, 0, 255);">Capitalization</span></a></dt></dl><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">A process of converting income to value. (See also direct capitalization and yield capitalization).<br /></p><div style="text-align: justify;"> </div><dl style="text-align: justify;font-family:courier new;" ><span style="font-size:85%;"> <dd><br /></dd> </span><dt><a name="Direct Capitalization"> <span style="color: rgb(0, 0, 255);">Direct Capitalization</span></a></dt></dl><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><br /> [1] A valuation method used to convert a single year's income expectancy (or an annual average of several year's income expectancies) into a value estimate. [2] A capitalization technique that utilizes capitalization (cap) rates and multipliers extracted from sales to provide a value estimate. Yield and value change are implied but not identified.</p><div style="text-align: justify;"> </div><dl style="text-align: justify;font-family:courier new;" ><dt><a name="Discount Rate"><span style="color: rgb(0, 0, 255);">Discount Rate</span></a></dt></dl><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The term used to explain the compound interest rate used in the in approach to value to convert expected future cash flows into a present value.</p><div style="text-align: justify;"> </div><dl style="text-align: justify;font-family:courier new;" ><dt><span style="color: rgb(0, 0, 255);"><a name="Discounted Cash Flow Analysis"> Discounted Cash Flow Analysis</a></span></dt></dl><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">A valuation technique that specifies [1] the quantity, variability, timing, duration of periodic income, and [2] the quantity/timing of the reversion (sale of property) then discounts these cash flows at a specified yield rate to derive a present value estimate.</p><div style="text-align: justify;"> </div><dl style="text-align: justify;font-family:courier new;" ><dt><a name="Effective Gross Income"><span style="color: rgb(0, 0, 255);">Effective Gross Income</span></a></dt></dl><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">Anticipated income from operation of the real estate after deduction for vacancy and collection loss.</p><div style="text-align: justify;"> </div><dl style="text-align: justify;font-family:courier new;" > <dt><a name="Leased Fee Interest"><span style="color: rgb(0, 0, 255);">Leased Fee Interest</span></a></dt> </dl><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The <i>leased fee</i> interest, as distinguished from the <i>leasehold </i>estate (tenant rights to occupancy), is defined as the ownership interest held by a landlord with the right of occupancy and use conveyed to others. Theoretically, the combined estates would make up the <i>fee simple</i> estate which is the <i>unencumbered</i> interest traditionally valued. When a lease encumbers a property, the partitioned interests must be analyzed. The rights of the <i>leased fee</i> owner (the lessor) and the leasehold (the lessee) are specified by contract terms contained within the lease. Regardless of the interest appraised, all estates are subject to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.</p><div style="text-align: justify;"> </div><dl style="text-align: justify;font-family:courier new;" ><dt><a name="Net Operating Income (NOI) "> <span style="color: rgb(0, 0, 255);">Net Operating Income (NOI) </span></a></dt></dl><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The net income left remaining after deduction of all operating expenses from effective gross income but before payment of debt service and deduction of book depreciation.</p><div style="text-align: justify;"> </div><dl style="text-align: justify;font-family:courier new;" ><dt><a name="Potential Gross Income"> <span style="color: rgb(0, 0, 255);">Potential Gross Income</span></a></dt></dl><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The total income a property is capable of generating at full occupancy but before deduction of vacancy and operating expenses.</p><div style="text-align: justify;"> </div><dl style="text-align: justify;font-family:courier new;" ><dt><a name="Reversion"><span style="color: rgb(0, 0, 255);">Reversion</span></a></dt></dl><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">[1] the value of property at the expiration of a certain time period. [2] the right of a lessor to possess leased property upon the termination of a lease. [3] REVERSIONARY INTEREST - the interest a person has in property upon the termination of the preceding estate.</p><div style="text-align: justify;"> </div><dl style="text-align: justify;font-family:courier new;" ><dt><a name="Yield Capitalization"><span style="color: rgb(0, 0, 255);">Yield Capitalization</span></a></dt></dl><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">A capitalization method that derives a present value estimate by discounting each future benefit at an appropriate yield rate or by developing and overall rate that explicitly reflects the investment's income pattern, value change, and yield rate. A valuation method that converts projected income into value and considers the equity return on investment.</p><p style="font-family: courier new; text-align: justify;">From <a href="http://www.propex.com/">http://www.propex.com</a><br /></p>noerhilmanhttp://www.blogger.com/profile/07501293211100270892noreply@blogger.com0tag:blogger.com,1999:blog-3477859003063791958.post-49577019630470393072007-11-02T23:26:00.001+07:002007-11-02T23:27:34.134+07:00Income approach<h1 style="text-align: justify; font-family: courier new;">Income approach<o:p></o:p></h1><div style="text-align: justify; font-family: courier new;"> </div><h3 style="text-align: justify; font-family: courier new;" id="siteSub">From Wikipedia, the free encyclopedia<o:p></o:p></h3><div style="text-align: justify; font-family: courier new;"> </div><p style="text-align: justify; font-family: courier new;">The <b>Income Approach</b> is one of three major groups of methodologies, called valuation <i>approaches</i>, used by appraisers. It is particularly common in commercial <a href="http://en.wikipedia.org/wiki/Real_estate_appraisal" title="Real estate appraisal">real estate appraisal</a> and in business appraisal. The fundamental math is similar to the methods used for financial valuation, securities analysis, or bond pricing. However, there are some significant and important modifications when used in real estate or business valuation.<o:p></o:p></p><div style="text-align: justify; font-family: courier new;"> </div><p style="text-align: justify; font-family: courier new;">While there are quite a few acceptable methods under the rubric of the income approach, most of these methods fall into three categories: direct capitalization, discounted cash flow, and gross income multiplier.<o:p></o:p></p><div style="text-align: justify; font-family: courier new;"> </div><h2 style="text-align: justify;font-family:courier new;"><span class="mw-headline">Direct Capitalization</span><o:p></o:p></h2><div style="text-align: justify; font-family: courier new;"> </div><p style="text-align: justify; font-family: courier new;">This is simply the product of dividing the annual net operating income (NOI) by the appropriate <a href="http://en.wikipedia.org/wiki/Capitalization_rate" title="Capitalization rate">capitalization rate</a> (CAP rate). For income producing real estate, the NOI is the net income of the real estate (but not the business interest) plus any interest expense and non-cash items (e.g. -- depreciation) minus a reserve for replacement. The CAP rate may be determined in one of several ways, including market extraction, band-of-investments, or a built-up method. When appraising complex property, or property which has a risk-adjustment due to unusual factors (i.e. -- contamination), a risk-adjusted cap rate is appropriate.<sup id="_ref-0"><a href="http://en.wikipedia.org/wiki/Income_approach#_note-0" title="">[1]</a></sup> An implicit assumption in direct capitalization is that the cash flow is a perpetuity and the cap rate is a constant. If either cash flows or risk levels are expected to change, then direct capitalization fails and a discounted cash flow method must be used.<o:p></o:p></p><div style="text-align: justify; font-family: courier new;"> </div><p style="text-align: justify; font-family: courier new;">In <st1:country-region st="on"><st1:place st="on">UK</st1:place></st1:country-region> practice, Net Income is capitalised by use of market-derived yields. If the property is <a href="http://en.wikipedia.org/wiki/Rack-rent" title="Rack-rent">rack-rented</a> then the All Risks Yield will be used. However, if the passing rent differs from the Estimated Rental Value (ERV), then either the Term & Reversion, Layer or Equivalent Yield methods will be employed. In essence, these entail discounting the different income streams - that of the current or passing rent and that of the reversion to the full rental value - at different adjusted yields.<o:p></o:p></p><div style="text-align: justify; font-family: courier new;"> </div><h2 style="text-align: justify; font-family: courier new;"><a name="Discounted_Cash_Flow" id="Discounted_Cash_Flow"></a><span class="mw-headline">Discounted Cash Flow</span><o:p></o:p></h2><div style="text-align: justify; font-family: courier new;"> </div><p style="text-align: justify; font-family: courier new;">THe DCF model is analogous to a <a href="http://en.wikipedia.org/wiki/Net_present_value" title="Net present value">net present value</a> estimation in finance. However, appraisers often mistakenly use a market-derived cap rate and NOI as substitutes for the discount rate and/or the annual cash flow. The Cap rate equals the discount rate plus-or-minus a factor for anticipated growth. The NOI may be used if market value is the goal, but if investment value is the goal, then some other measure of cash flow is appropriate<sup id="_ref-1"><a href="http://en.wikipedia.org/wiki/Income_approach#_note-1" title="">[2]</a></sup>.<o:p></o:p></p><div style="text-align: justify; font-family: courier new;"> </div><h2 style="text-align: justify; font-family: courier new;"><a name="Gross_Rent_Multipler" id="Gross_Rent_Multipler"></a><span class="mw-headline">Gross Rent Multipler</span><o:p></o:p></h2><div style="text-align: justify; font-family: courier new;"> </div><p style="text-align: justify; font-family: courier new;">The GRM is simply the ratio of the selling price divided into monthly (or annual) rent. If several similar properties have sold in the market recently, then the GRM can be computed for those and applied to the anticipated monthly rent for the subject property. GRM is useful for rental houses, duplexes, and simple commercial properties when used as a supplement to other more well developed methods.<o:p></o:p></p><div style="text-align: justify; font-family: courier new;"> </div><h2 style="text-align: justify; font-family: courier new;"><a name="Short-cut_DCF" id="Short-cut_DCF"></a><span class="mw-headline">Short-cut DCF</span><o:p></o:p></h2><div style="text-align: justify; font-family: courier new;"> </div><p style="text-align: justify; font-family: courier new;">The <b>Short-cut DCF</b> method is based on a model developed by Professor <a href="http://en.wikipedia.org/wiki/Neil_Crosby" title="Neil Crosby">Neil Crosby</a> of the <a href="http://en.wikipedia.org/wiki/University_of_Reading" title="University of Reading">University of Reading</a> (and ultimately based on earlier work by Wood and Greaves). The <a href="http://en.wikipedia.org/wiki/RICS" title="RICS">RICS</a> have encouraged use of the method in appropriate circumstances.<sup id="_ref-2"><a href="http://en.wikipedia.org/wiki/Income_approach#_note-2" title="">[3]</a></sup> The Short-cut DCF is an adaptation to property valuation of the DCF method, which is widely used in finance.<o:p></o:p></p><div style="text-align: justify; font-family: courier new;"> </div><p style="text-align: justify; font-family: courier new;">In the Short-cut DCF, the passing rent, which is constant (in nominal or real terms) for the duration of the rent period, is discounted at an appropriate <a href="http://en.wikipedia.org/wiki/Rate_of_return" title="Rate of return">rate of return</a> (possibly derived by reference to the risk-free rate of return obtained on government bonds, to which is added an allowance for risk and an allowance for the illiquidity of property assets). The reversion is discounted at the market-derived All Risks Yield (ARY), which correctly implies growth in the reversionary income stream. The reversionary income is the current Estimated Rental Value (ERV) inflated by an appropriate annual growth factor (or <a href="http://en.wikipedia.org/wiki/CAGR" title="CAGR">CAGR</a> - Compound Annual Growth Rate). The crux of the Crosby-Wood model, and that which sets it apart from the customary DCF, is that the growth factor is derived by means of formula, as a function of the rate of return and the All Risks Yield. For example, if the rate of return is 10% per annum, the ARY is 8% per annum and rent is reviewed annually, then the growth factor will be 2%. (This simple subtraction only works when rent is reviewed annually - in all other situations the growth factor is derived by use of the <st1:place st="on">Crosby</st1:place> formula.) Thus the Short-cut DCF produces a mathematically consistent valuation.<o:p></o:p></p><div style="text-align: justify; font-family: courier new;"> </div><h2 style="text-align: justify; font-family: courier new;"><a name="See_also" id="See_also"></a><a name="Further_Reading"></a><span class="mw-headline">Further <st1:city st="on"><st1:place st="on">Reading</st1:place></st1:city></span><o:p></o:p></h2><div style="text-align: justify; font-family: courier new;"> </div><ul style="text-align: justify; font-family: courier new;" type="disc"><li class="MsoNormal">Baum, A. and Mackmin, D. (1989) <i>The Income Approach to Property Valuation</i> (Third Edition), Routledge, <st1:city st="on"><st1:place st="on">London</st1:place></st1:city>.<o:p></o:p></li><li class="MsoNormal">Baum, A. and Crosby, N. (1988) <i>Property Investment Appraisal</i> (Second Edition), Routledge, <st1:city st="on"><st1:place st="on">London</st1:place></st1:city>.<o:p></o:p></li><li class="MsoNormal">Havard, T. (2004) <i>Investment Property Valuation Today</i>, Estates Gazette, <st1:city st="on"><st1:place st="on">London</st1:place></st1:city>.<o:p></o:p></li><li class="MsoNormal"><i>The Appraisal of Real Estate</i> (12th Edition), The Appraisal Institute, Chicago.<o:p></o:p></li></ul><div style="text-align: justify; font-family: courier new;"> </div><h2 style="text-align: justify; font-family: courier new;"><a name="References" id="References"></a><span class="mw-headline">References</span><o:p></o:p></h2><div style="text-align: justify; font-family: courier new;"> </div><ol style="text-align: justify; font-family: courier new;" start="1" type="1"><li class="MsoNormal" id="_note-0"><b><a href="http://en.wikipedia.org/wiki/Income_approach#_ref-0" title="">^</a></b> <a href="http://en.wikipedia.org/wiki/Bill_Mundy" title="Bill Mundy">Bill Mundy</a>, The Impact of Hazardous Material on Value, <i>The Appraisal Journal</i>, 1992.<o:p></o:p></li><li class="MsoNormal" id="_note-1"><b><a href="http://en.wikipedia.org/wiki/Income_approach#_ref-1" title="">^</a></b> <a href="http://en.wikipedia.org/wiki/John_A._Kilpatrick" title="John A. Kilpatrick">John A. Kilpatrick</a>, Market Value(s), presentation to the Appraisal Institute, 2000, <a href="http://www.greenfieldadvisors.com/publications/marketvalues.pdf" title="http://www.greenfieldadvisors.com/publications/marketvalues.pdf">http://www.greenfieldadvisors.com/publications/marketvalues.pdf</a>,<o:p></o:p></li><li class="MsoNormal" id="_note-2"><b><a href="http://en.wikipedia.org/wiki/Income_approach#_ref-2" title="">^</a></b> See RICS (1997) <i>Commercial Investment Property: Valuation Methods - An Information Paper.</i><o:p></o:p></li></ol><div style="text-align: justify; font-family: courier new;"> </div><p style="text-align: justify; font-family: courier new;" class="MsoNormal"><o:p> </o:p></p>noerhilmanhttp://www.blogger.com/profile/07501293211100270892noreply@blogger.com0tag:blogger.com,1999:blog-3477859003063791958.post-42905443802098692262007-11-02T22:51:00.000+07:002007-11-02T23:29:30.008+07:00The Cost Approach<div style="text-align: justify; font-family: courier new;font-family:courier new;"><span style="font-size:100%;"><span style="">The Cost Approach is based on the principle of </span><b><i><span style="">substitution</span></i></b><span style=""> which asserts that no prudent buyer or investor will pay more for a property than that amount for which the site could be acquired and which improvements that have equal desirability and utility can be constructed without undue delay. It is a method of appraising property based on the depreciated reproduction or replacement cost (new) of improvements, plus the market value of the site.</span><span style="" lang="EN"><o:p></o:p></span></span></div><p class="MsoNormal" style="margin-bottom: 14pt; text-align: justify; font-family: courier new;font-family:courier new;"> </p><div style="font-family: courier new;"> </div><p class="MsoNormal" style="margin-bottom: 14pt; text-align: justify; font-family: courier new;font-family:courier new;"><span style="font-size:100%;"><span style="">This approach has the most validity/reliability when improvements are new or near-new. For older/aged structures, the cost approach may not be relevant due to the greater subjectivity involved in estimating <span style="">accrued depreciation</span></span><span style="">. </span><span style="" lang="EN"><o:p></o:p></span></span></p><div style="text-align: justify; font-family: courier new;"> </div><p class="MsoNormal" style="margin-bottom: 14pt; text-align: justify; font-family: courier new;"><span style="font-size:100%;"><span style="">The cost approach begins with the determination of site value. Sales of vacant land with similar zoning, utility, and acquired for the same or similar use as the subject property being appraised, are analyzed. In markets where site sales are limited, other site sales of varying property type may be considered as long as they have core similarities in legally acceptable use.</span><span style="" lang="EN"><o:p></o:p></span></span></p><div style="text-align: justify; font-family: courier new;"> </div><p class="MsoNormal" face="courier new" style="margin-bottom: 14pt; text-align: justify; font-family: courier new;"><span style="font-size:100%;"><span style="">Once site value has been determined, <span style="">reproduction</span></span><span style=""> or </span><span style="">replacement</span><span style=""> costs of the improvements are estimated as if the improvements were new. The estimate is then further adjusted for all elements of accrued depreciation including </span><span style="">physical depreciation</span><span style="">, </span><span style="">functional</span><span style=""> and/or </span><span style="">external</span><span style=""> obsolescence. </span><span style="" lang="EN"><o:p></o:p></span></span></p><div style="text-align: justify; font-family: courier new;"> </div><span style="font-family: courier new;font-family:courier new;font-size:100%;" ><span style="">The following breakdown method shows how the cost approach is used to value a commercial building.</span><br /><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://3.bp.blogspot.com/_pVuIE4UxMDI/RytLoCVpn2I/AAAAAAAAADI/rTyLALcevjc/s1600-h/TABEL.JPG"><img style="cursor: pointer;" src="http://3.bp.blogspot.com/_pVuIE4UxMDI/RytLoCVpn2I/AAAAAAAAADI/rTyLALcevjc/s400/TABEL.JPG" alt="" id="BLOGGER_PHOTO_ID_5128275751885971298" border="0" /></a><br /></span><a style="font-family: courier new;" href="http://www.propex.com/"><span style=""><span class="a">www.propex.com</span></span></a><br /><span style="font-family: courier new;font-family:courier new;font-size:100%;" ><br /></span><p style="text-align: justify; font-family: courier new;font-family:courier new;" class="MsoNormal"><span style="font-size:100%;"><span style=""><br /></span></span></p>noerhilmanhttp://www.blogger.com/profile/07501293211100270892noreply@blogger.com0tag:blogger.com,1999:blog-3477859003063791958.post-35196996335964634742007-10-28T14:41:00.000+07:002007-10-30T12:21:58.447+07:00Sales comparison approach<h1 style="font-family: courier new; text-align: justify;">Sales comparison approach<o:p></o:p></h1><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;" id="siteSub">From Wikipedia, the free encyclopedia<o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The <b>sales comparison approach</b> (SCA) is one of the three major groupings of valuation methods, called the <b>three approaches to value</b>, commonly used in <a href="http://en.wikipedia.org/wiki/Real_estate_appraisal" title="Real estate appraisal">real estate appraisal</a>. This approach compares a subject <a href="http://en.wikipedia.org/wiki/Property" title="Property">property</a>'s characteristics with those of comparable properties which have recently sold in similar transactions. The process uses one of several techniques to adjust the prices of the comparable transactions according to the presence, absence, or degree of characteristics which influence value. As such, all sales comparison approach methods are variations on hedonic-type measurements, which determine the value of something as the sum of the value of the various components which contribute utility.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><o:p> </o:p></p><div style="text-align: justify;"> </div><h2 style="text-align: justify;font-family:courier new;" ><span class="mw-headline">Units of Comparison</span><o:p></o:p></h2><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The SCA relies on the assumption that a matrix of attributes or significant features of a property drive its value. For examples, in the case of a single family residence, such attributes might be floor area, <a href="http://en.wikipedia.org/wiki/View" title="View">views</a>, distance to amenities, number of bathrooms, lot size, age of the property and condition of property.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><o:p> </o:p></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><a name="Economic_Basis" id="Economic_Basis"></a><span class="mw-headline">Economic Basis</span><o:p></o:p></h2><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The sales comparison approach is based upon the principles of <a href="http://en.wikipedia.org/wiki/Supply_and_demand" title="Supply and demand">supply and demand</a>, as well as upon the principle of <a href="http://en.wikipedia.org/wiki/Substitution" title="Substitution">substitution</a>. Supply and demand indicates value through typical <a href="http://en.wikipedia.org/w/index.php?title=Market_behavior&action=edit" title="Market behavior">market behavior</a> of both buyers and sellers. Substitution indicates that a purchaser would not purchase an improved property for any value higher than it could be replaced for on a site with equivocal <a href="http://en.wikipedia.org/wiki/Utility" title="Utility">utility</a>, assuming no undue delays in construction.<o:p></o:p></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><a name="Examples_of_Methods" id="Examples_of_Methods"></a><span class="mw-headline">Examples of Methods</span><o:p></o:p></h2><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In practice, the most common SCA method used by <a href="http://en.wikipedia.org/wiki/Real_estate_broker" title="Real estate broker">estate agents</a> and real estate appraisers is the sales adjustment grid. It uses a small number of recently sold properties in the immediate vicinity of the subject property to estimates the value of its attributes. Adjustments to the comparables may be determined by trend analysis, matched-pairs analysis, or simple surveys of the market.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">More advanced researchers and appraisers commonly employ statistical techniques based on multiple regression methods which generally compare a larger number of more geographically dispersed property transactions to determine the significance and magnitude of the impact of different attributes on property value. Research has shown that the sales adjustment grid and the multiple regression model are theoretically the same, with the former applying more heuristic methods and the latter using statistical techniques<sup id="_ref-0"><a href="http://en.wikipedia.org/wiki/Sales_comparison_approach#_note-0" title="">[1]</a></sup>.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">Spatial auto regression plagues these statistical techniques, since high priced properties tend to cluster together and therefore one property price is not independent of its neighbor. Given <a href="http://en.wikipedia.org/w/index.php?title=Property_inflation&action=edit" title="Property inflation">property inflation</a> and <a href="http://en.wikipedia.org/w/index.php?title=Price_cycles&action=edit" title="Price cycles">price cycles</a>, both comparison techniques can become unreliable if the time interval between transactions sampled is excessive. The other factor undermining a simplistic use of the SCA is the evolving nature of city neighborhoods, though in reality urban evolution occurs gradually enough to minimize its' impact on this approach to value.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In more complex situations, such as litigation or contaminated property appraisal, appraisers develop SCA adjustments using widely accepted advanced techniques, such as repeat sales models (to measure house price appreciation over time), survey research (e.g. -- <a href="http://en.wikipedia.org/wiki/Contingent_valuation" title="Contingent valuation">contingent valuation</a>), case studies (to develop adjustments in complex situations) or other statistically-based techniques.<o:p></o:p></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><a name="Further_reading" id="Further_reading"></a><span class="mw-headline">Further reading</span><o:p></o:p></h2><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal"><i>The Appraisal of Real Estate, 12th Edition</i>, by the Appraisal Institute is an industry-recognized textbook.<o:p></o:p></li><li class="MsoNormal"><i>The Uniform Standards of Professional Appraisal Practice</i>, by The Appraisal Foundation, updated and published annually through the 2006 edition; henceforth, updated editions are to appear biannually.<o:p></o:p></li></ul><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><a name="References" id="References"></a><span class="mw-headline">References</span><o:p></o:p></h2><div style="text-align: justify;"> </div><ol style="font-family: courier new; text-align: justify;" start="1" type="1"><li class="MsoNormal" id="_note-0"><b><a href="http://en.wikipedia.org/wiki/Sales_comparison_approach#_ref-0" title="">^</a></b> see, for example, Lentz and Wang, Journal of Real Estate Research, 1997<o:p></o:p></li></ol><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;" class="MsoNormal"><o:p> </o:p></p>noerhilmanhttp://www.blogger.com/profile/07501293211100270892noreply@blogger.com0tag:blogger.com,1999:blog-3477859003063791958.post-27956077070807837532007-10-28T14:34:00.000+07:002007-10-28T14:36:56.660+07:00Real estate appraisal<h1 style="font-family: courier new; text-align: justify;">Real estate appraisal<o:p></o:p></h1><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;" id="siteSub">From Wikipedia, the free encyclopedia<o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><b>Real estate appraisal</b> is the practice of developing an opinion of the value of real property, usually its <a href="http://en.wikipedia.org/wiki/Market_value" title="Market value">Market Value</a>. (<i>Real estate appraisal</i> is American usage; many other countries use the terms <i>property valuation</i> or <i>land valuation</i>.) The need for appraisals arises from the heterogenous nature of property as an investment class: no two properties are identical, and all properties differ from each other in their location - which is the most important determinant of their value. So there cannot exist a centralised <a href="http://en.wikipedia.org/wiki/Walrasian_auction" title="Walrasian auction">Walrasian auction</a> setting for the trading of property assets, as there exists for trade in corporate stock. The absence of a market-based pricing mechanism determines the need for an expert appraisal/valuation of real estate/property.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">A real estate appraisal is performed by a licensed or certified appraiser (in many countries known as a <i>property valuer</i> or <i>land valuer</i>). If the appraiser's opinion is based on Market Value, then it must also be based on the <a href="http://en.wikipedia.org/wiki/Highest_and_best_use" title="Highest and best use">Highest and Best Use</a> of the <a href="http://en.wikipedia.org/wiki/Real_property" title="Real property">real property</a>. For mortgage valuations of improved residential property in the <st1:country-region st="on"><st1:place st="on">US</st1:place></st1:country-region>, the appraisal is most often reported on a standardized form, such as the <a href="http://en.wikipedia.org/wiki/Uniform_Residential_Appraisal_Report" title="Uniform Residential Appraisal Report">Uniform Residential Appraisal Report</a>.<sup id="_ref-0"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-0" title="">[1]</a></sup> Appraisals of more complex property (e.g. -- income producing, raw land) are usually reported in a narrative appraisal report.<o:p></o:p></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><span class="mw-headline">Types of value</span><o:p></o:p></h2><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">There are several types and definitions of value sought by a real estate appraisal. Some of the most common are:<o:p></o:p></p><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal"><b>Market Value</b> – The price at which an asset would trade in a competitive <a href="http://en.wikipedia.org/wiki/Walrasian_auction" title="Walrasian auction">Walrasian auction</a> setting. Market Value is usually interchangeable with <i>Open Market Value</i> or <i>Fair Value</i>. <a href="http://en.wikipedia.org/w/index.php?title=International_Valuation_Standards&action=edit" title="International Valuation Standards">International Valuation Standards</a> (IVS) define Market Value as:<o:p></o:p></li></ul><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;"><i>Market Value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgably, prudently, and without compulsion.</i><sup id="_ref-1"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-1" title="">[2]</a></sup><o:p></o:p></p><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal"><b>Value-in-use</b> – The net present value (NPV) of a cash flow that an asset generates for a specific owner under a specific use. Value-in-use is the value to one particular user, which may be above or below the market value of a property.<o:p></o:p></li></ul><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal"><b>Investment value</b> - is the value to one particular investor, which may be above or below the market value of a property.<o:p></o:p></li></ul><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal"><b>Insurable value</b> - is the value of real property covered by an <a href="http://en.wikipedia.org/wiki/Insurance_policy" title="Insurance policy">insurance policy</a>. Generally it does not include the site value.<o:p></o:p></li></ul><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal"><b>Liquidation value</b> -- may be analyzed as either a <b>forced liquidation</b> or an <b>orderly liquidation</b> and is a commonly sought standard of value in bankruptcy proceedings.<o:p></o:p></li></ul><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="Price_versus_value" id="Price_versus_value"></a><span class="mw-headline">Price versus value</span><o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">It is important to distinguish between <a href="http://en.wikipedia.org/wiki/Market_value" title="Market value">Market Value</a> and <a href="http://en.wikipedia.org/wiki/Price" title="Price">Price</a>. A price obtained for a specific property under a specific transaction may or may not represent that property's market value: special considerations may have been present, such as a special relationship between the buyer and the seller, or else the transaction may have been part of a larger set of transactions in which the parties had engaged. Another possibility is that a special buyer may have been willing to pay a premium over and above the market value, if his subjective valuation of the property (its <i>investment value</i> for him) was higher than the Market Value. An example of this would be the owner of a neighbouring property who, by combining his own property with the subject property, could thereby obtain economies-of-scale. Such situations often arise in corporate finance, as for example when a merger or acquisition is concluded at a price which is higher than the value represented by the price of the underlying stock. The usual rationale for these valuations would be that the 'sum is greater than its parts', since full ownership of a company entails special privileges for which a potential purchaser would be willing to pay. Such situations arise in real estate/property markets as well. It is the task of the real estate appraiser/property valuer to judge whether a specific price obtained under a specific transaction is indicative of Market Value.<o:p></o:p></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="Market_value_definitions_in_the_US" id="Market_value_definitions_in_the_US"></a><span class="mw-headline">Market value definitions in the <st1:country-region st="on"><st1:place st="on">US</st1:place></st1:country-region></span><o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In the <st1:country-region st="on"><st1:place st="on">US</st1:place></st1:country-region>, appraisals are performed to a certain standard of value (e.g. -- foreclosure value, fair market value, distressed sale value, investment value). The most commonly used definition of value is <a href="http://en.wikipedia.org/wiki/Market_value" title="Market value">Market Value</a>. While USPAP does not define Market Value, it provides general guidance for how Market Value should be defined:<o:p></o:p></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;"><i>...a type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser as applicable in an appraisal.</i><o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">Thus, the definition of value used in an appraisal analysis and report is a set of assumptions about the market in which the subject property may transact. It becomes the basis for selecting comparable data for use in the analysis. These assumptions will vary from definition to definition but generally fall into three categories:<o:p></o:p></p><div style="text-align: justify;"> </div><ol style="font-family: courier new; text-align: justify;" start="1" type="1"><li class="MsoNormal">The relationship, knowledge, and motivation of the parties (i.e., seller and buyer);<o:p></o:p></li><li class="MsoNormal">The terms of sale (e.g., cash, cash equivalent, or other terms); and<o:p></o:p></li><li class="MsoNormal">The conditions of sale (e.g., exposure in a competitive market for a reasonable time prior to sale).<o:p></o:p></li></ol><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In the <st1:country-region st="on"><st1:place st="on">US</st1:place></st1:country-region>, the most common definition of Market Value is the one promulgated for use in Federally regulated residential mortgage financing:<o:p></o:p></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;"><i>The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.</i><sup id="_ref-2"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-2" title="">[3]</a></sup><o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">For example, adjustments must be made to the <a href="http://en.wikipedia.org/wiki/Comparables" title="Comparables">comparables</a> sales prices for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment.<sup id="_ref-3"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-3" title="">[4]</a></sup><o:p></o:p></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><a name="Three_approaches_to_value" id="Three_approaches_to_value"></a><span class="mw-headline">Three approaches to value</span><o:p></o:p></h2><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">There are three general groups of methodologies for determining value. These are usually referred to as the "three approaches to value":<o:p></o:p></p><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal">The <a href="http://en.wikipedia.org/w/index.php?title=Cost_approach&action=edit" title="Cost approach">cost approach</a><o:p></o:p></li><li class="MsoNormal">The <a href="http://en.wikipedia.org/wiki/Sales_comparison_approach" title="Sales comparison approach">sales comparison approach</a> and<o:p></o:p></li><li class="MsoNormal">The <a href="http://en.wikipedia.org/wiki/Income_approach" title="Income approach">income approach</a><o:p></o:p></li></ul><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The appraiser will determine which one or more of these approaches may be applicable, based on the scope of work determination, and from that develop an appraisal analysis. Costs, income, and sales vary widely from one situation to the next, and particular importance is given to the specific characteristics of the subject.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">Consideration is also given to the market for the property appraised. Appraisals of properties that are typically purchased by investors (e.g. - skyscrapers) may give greater weight to the income approach, while small retail or office properties, often purchased by owner-users, may give greater weighting to the sales comparison approach. While this may seem simple, it is not always obvious. For example, apartment complexes of a given quality tend to sell at a price per apartment, and as such the sales comparison approach may be more applicable. Single family residences are most commonly valued with greatest weighting to the sales comparison approach, but if a single family dwelling is in a neighborhood where all or most of the dwellings are rental units, then some variant of the income approach may be more useful.<o:p></o:p></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="The_cost_approach" id="The_cost_approach"></a><span class="mw-headline">The cost approach</span><o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The <b>cost approach</b> was formerly called the summation approach. The theory is that the value of a property can be estimated by summing the land value and the depreciated value of any improvements. The value of the improvements is often referred to by the abbreviation RCNLD (reproduction cost new less depreciation or replacement cost new less deprecation). Reproduction refers to reproducing an exact replica. Replacement cost refers to the cost of building a house or other improvement which has the same utility, but using modern design, workmanship and materials. In practice, appraisers use replacement cost and then deduct a factor for any functional disutility associated with the age of the subject property.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In most instances when the cost approach is involved, the overall methodology is a hybrid of the cost and sales comparison approaches. For example, while the replacement cost to construct a building can be determined by adding the labor, material, and other costs, land values and depreciation must be derived from an analysis of comparable data.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The cost approach is considered reliable when used on newer structures, but the method tends to become less reliable for older properties. The cost approach is often the only reliable approach when dealing with special use properties (e.g. -- public assembly, marinas).<o:p></o:p></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="The_sales_comparison_approach" id="The_sales_comparison_approach"></a><span class="mw-headline">The sales comparison approach</span><o:p></o:p></h3><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;"><i>Main article: <a href="http://en.wikipedia.org/wiki/Sales_comparison_approach" title="Sales comparison approach">Sales comparison approach</a></i><o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The <b>sales comparison approach</b> examines the price or price per unit area of similar properties being sold in the marketplace. Simply put, the sales of properties similar to the subject are analyzed and the sale prices adjusted to account for differences in the comparables to the subject to determine the value of the subject. This approach is generally considered the most reliable if adequate comparable sales exist. In any event, it is the only independent check on the reasonability of an appraisal opinion.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">Note that this approach develops value from a purely pricing scheme, and as such is an example of a revealed preference model. An interesting perspective on the relationship between relatively subjective human estimation as compared with that obtained by purely mathematic modeling is contained in "Simple Heuristics That Make Us Smart" by Gerd Gigerenzer. Dr. Gigerenzer, a psychologist, asked people to estimate some real world facts based simply on their knowledge, experience and impressions. Common knowledge and some simple rules created models which were close to those produced by multiple regression analysis (MRA) and neural networks. The predictive value of the human models applied to a new sample was a bit better than the mathematical models, suggesting that the mathematical models may have described the data better but missed the predictive relationships. Similarly automated valuation models frequently find building size (square feet or meters) predictive of value, even when that information is not explicitly advertised. This is similar to the example in "The Wisdom of Crowds", Surowiecki, in which the scientist Francis Galton observed a crowd at a fair to, on average, accurately estimate the size of an ox.<o:p></o:p></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="The_income_capitalization_approach" id="The_income_capitalization_approach"></a><span class="mw-headline">The income capitalization approach</span><o:p></o:p></h3><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;"><i>Main article: <a href="http://en.wikipedia.org/wiki/Income_approach" title="Income approach">Income approach</a></i><o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><b>The income capitalization approach</b> is used to value commercial and investment properties.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In a commercial income producing property this approach capitalizes an income stream into a <a href="http://en.wikipedia.org/wiki/Present_value" title="Present value">present value</a>. This can be done using revenue multipliers or single-year <a href="http://en.wikipedia.org/wiki/Capitalization_rate" title="Capitalization rate">capitalization rates</a> of the Net Operating Income. The Net Operating Income (NOI) is gross potential income (GPI), less vacancy (= Effective Gross Income) less operating expenses (but excluding debt service or depreciation charges applied by accountants).<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">Alternatively, multiple years of net operating income can be valued by a <a href="http://en.wikipedia.org/wiki/Discounted_cash_flow" title="Discounted cash flow">discounted cash flow</a> analysis (DCF) model. The DCF model is widely used to value larger and more expensive income-producing properties, such as large office towers.<o:p></o:p></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="UK_valuation_methods" id="UK_valuation_methods"></a><st1:country-region st="on"><st1:place st="on"><span class="mw-headline">UK</span></st1:place></st1:country-region><span class="mw-headline"> valuation methods</span><o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In the <st1:country-region st="on"><st1:place st="on">UK</st1:place></st1:country-region>, valuation methodology has traditionally been classified into five methods:<o:p></o:p></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;">1. <b>Comparable method</b>. Used for most types of property where there is good evidence of previous sales. This is analogous to the sales comparison approach outlined above.<o:p></o:p></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;">2. <b>Investment/income method</b>. Used for most commercial (and residential) property that is producing future cash flows through the letting of the property. If the current Estimated Rental Value (ERV) and the passing income are known, as well as the market-determined <a href="http://en.wikipedia.org/w/index.php?title=Equivalent_yield&action=edit" title="Equivalent yield">equivalent yield</a>, then the property value can be determined by means of a simple model. Note that this method is really a comparison method, since the main variables are determined in the market. In standard US practice, however, the closely related capitalising of NOI is confounded with the DCF method under the general classification of the income capitalization approach (see above).<o:p></o:p></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;">3. <b>Accounts/profits method</b>. Used for trading properties where evidence of rates is slight, such as hotels, restaurants and old-age homes. A three-year average of operating income (derived from the profit and loss or <a href="http://en.wikipedia.org/wiki/Income_statement" title="Income statement">income statement</a>) is capitalised using an appropriate yield. Note that since the variables used are inherent to the property and are not market-derived, therefore unless appropriate adjustments are made, the resulting value will be Value-in-Use or Investment Value, not <a href="http://en.wikipedia.org/wiki/Market_value" title="Market value">Market Value</a>.<o:p></o:p></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;">4. <b>Development/residual method</b>. Used for properties ripe for development or redevelopment or for bare land only.<o:p></o:p></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;">5. <b>Contractor's/cost method</b>. Used for only those properties not bought and sold on the market. Both the development/residual method and the contractor's/cost method would be grouped in the US under the <a href="http://en.wikipedia.org/w/index.php?title=Cost_approach&action=edit" title="Cost approach">cost approach</a> (see above).<o:p></o:p></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><a name="Further_considerations" id="Further_considerations"></a><span class="mw-headline">Further considerations</span><o:p></o:p></h2><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="Highest_and_best_use" id="Highest_and_best_use"></a><span class="editsection">[<a href="http://en.wikipedia.org/w/index.php?title=Real_estate_appraisal&action=edit&section=10" title="Edit section: Highest and best use">edit</a>]</span> <span class="mw-headline">Highest and best use</span><o:p></o:p></h3><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;"><i>Main article: <a href="http://en.wikipedia.org/wiki/Highest_and_best_use" title="Highest and best use">Highest and best use</a></i><o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><b>Highest and Best Use</b> (HABU) is a term of art in the appraisal process. It is a process to determine the use of the property which produces the highest value for the land, as if vacant. There are four steps to the process. First, the appraiser determines all uses which are legally permissible for the property. Second, of the uses which are legally permissible, which ones are physically possible. Of those, which ones are financially feasible (sometimes referred to as <i>economically supported</i>). Of those uses which are feasible, which one and only use is maximally productive for the site. In a simple context, the appraiser must do this twice, comparing the results -- as if the land is vacant and in the as-is-improved state, taking into account the costs of demolishing any existing improvements. The outcome of this process is the highest and best use for the site. An appraisal of market value must explicitly assume that the owner or buyer would employ the property in its highest and best use, and therefore value the site accordingly.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In more complex appraisal assignments (e.g. -- contract disputes, litigation, brownfield or contaminated property valuation), the determination of highest and best use may be much more complex, and may need to take into account the various intermediate or temporary uses of the site, the contamination remediation process, and the timing of various legal issues.<sup id="_ref-4"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-4" title="">[5]</a></sup><o:p></o:p></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="Types_of_ownership_interest" id="Types_of_ownership_interest"></a><span class="mw-headline">Types of ownership interest</span><o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">Implicit in the analysis of the subject property is a determination of the interest in the property being appraised. For most common situations (e.g. -- mortgage finance) the <a href="http://en.wikipedia.org/wiki/Fee_simple" title="Fee simple">fee simple</a> interest is explicitly assumed since it is the most complete bundle of rights available. However, in many situations, and in many societies which do not follow English Common Law or the Napoleanic Code, some other interest may be more common. While there are many different possible interests in real estate, the three most common are:<o:p></o:p></p><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal"><b>Fee simple value</b> (known in the UK as <b>freehold</b>) - The most complete ownership in real estate, subject in common law countries to the powers reserved to the state (taxation, escheat, eminent domain, and police power)<o:p></o:p></li></ul><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal"><b>Leased fee value</b> - This is simply the fee simple interest encumbered by a lease. If the lease is at market rent, then the leased fee value and the fee simple value are equal. However, if the tenant pays more or less than market, the residual owned by the leased fee holder, plus the market value of the tenancy, may be more or less than the fee simple value.<o:p></o:p></li></ul><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal"><b>Leasehold value</b> - The interest held by a tenant. If the tenant pays market rent, then the leasehold has no market value. However, if the tenant pays less than market, the difference betweent the present value of what is paid and the present value of market rents would be a positive leasehold value. For example, a major chain retailer may be able to negotiate a below-market lease to serve as the anchor tenant for a shopping center. This leasehold value may be transferrable to another anchor tenant, and if so the retail tenant has a postive interest in the real estate.<o:p></o:p></li></ul><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="Scope_of_work" id="Scope_of_work"></a><span class="mw-headline">Scope of work</span><o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">While USPAP has always required appraisers to identify the scope of work needed to produce credible results, it became clear in recent years that appraisers did not fully understand the process for developing this adequately. In formulating the scope of work for a credible appraisal, the concept of a <i>limited</i> versus <i>complete</i> appraisal and the use of the Departure Rule caused confusion to clients, appraisers, and appraisal reviewers. In order to deal with this, USPAP was updated in 2006 with what came to be known as the Scope of Work project. In short, USPAP eliminated the Departure Rule and the concept of a limited appraisal and created a new Scope of Work rule. In this, appraisers were to identify six key parts of the appraisal problem at the beginning of each assignment:<o:p></o:p></p><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal">Client and other intended users<o:p></o:p></li><li class="MsoNormal">Intended use of the appraisal and appraisal report<o:p></o:p></li><li class="MsoNormal">Definition of value (e.g. -- market, foreclosure, investment)<o:p></o:p></li><li class="MsoNormal">Any hypothetical conditions or extraordinary assumptions<o:p></o:p></li><li class="MsoNormal">The effective date of the appraisal analysis<o:p></o:p></li><li class="MsoNormal">The salient features of the subject property<o:p></o:p></li></ul><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">Based on these factors, the appraiser must identify the scope of work needed, including the methodologies to be used, the extent of investigation, and the applicable approaches to value. The rule provided the explicit requirement that the minimum standards for scope of work were:<o:p></o:p></p><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal">Expectations of the client and other users<o:p></o:p></li><li class="MsoNormal">The actions of the appraiser's peers who carry out similar assignments<o:p></o:p></li></ul><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><a name="Mass_appraisal_and_automated_valuation_m" id="Mass_appraisal_and_automated_valuation_models"></a><span class="mw-headline">Mass appraisal and automated valuation models</span><o:p></o:p></h2><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><b>Automated valuation models</b> (AVMs) are growing in acceptance. These rely on statistical models such as multiple regression analysis or geographic information systems (GIS).<sup id="_ref-5"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-5" title="">[6]</a></sup> While AVMs can be quite accurate, particularly when used in a very homogeneous area, there is also evidence that AVMs are not accurate in other instances such as when they are used in rural areas, or when the appraised property does not conform well to the neighborhood. AVM's have also gained favor in class action litigation, and have been substantiated in numerous cases, both in Federal and state courts, as the appropriate method for dealing with large-scale real estate litigation problems, such as contaminated neighborhoods.<o:p></o:p></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><a name="Governing_authorities_and_professional_o" id="Governing_authorities_and_professional_organizations"></a><span class="mw-headline">Governing authorities and professional organizations</span><o:p></o:p></h2><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="International" id="International"></a><span class="mw-headline">International</span><o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The various US and international professional organizations have started collaborating in recent years towards the development of <a href="http://en.wikipedia.org/w/index.php?title=International_Valuation_Standards&action=edit" title="International Valuation Standards">International Valuation Standards</a> which will facilitate global real estate appraisal, a much-needed adjunct to real estate investment portfolios which transcend national boundaries.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The IVSC - The <a href="http://en.wikipedia.org/wiki/International_Valuation_Standards_Committee" title="International Valuation Standards Committee">International Valuation Standards Committee</a>, is a <a href="http://en.wikipedia.org/wiki/NGO" title="NGO">Non-governmental Organisation (NGO)</a> member of the <a href="http://en.wikipedia.org/wiki/United_Nations" title="United Nations">UN</a>, with membership that encompasses all the major national valuation standard-setters and professional associations from 41 different countries (including the <a href="http://en.wikipedia.org/wiki/Appraisal_Institute" title="Appraisal Institute">Appraisal Institute</a>, the <a href="http://en.wikipedia.org/wiki/RICS" title="RICS">RICS</a> and the <a href="http://en.wikipedia.org/w/index.php?title=Appraisal_Institute_of_Canada&action=edit" title="Appraisal Institute of Canada">Appraisal Institute of Canada</a>). IVSC have published the <a href="http://en.wikipedia.org/w/index.php?title=International_Valuation_Standards&action=edit" title="International Valuation Standards">International Valuation Standards (IVS)</a>, now in their 8th edition.<o:p></o:p></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="United_States" id="United_States"></a><st1:country-region st="on"><st1:place st="on"><span class="mw-headline">United States</span></st1:place></st1:country-region><o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">Appraisal practice in the <st1:country-region st="on"><st1:place st="on">US</st1:place></st1:country-region> is regulated by the various states. Prior to the 1990's, there were no commonly accepted standards either for appraisal quality or for appraiser licensure. In the 1980s, an ad-hoc committee representing various appraisal professional organizations in the <st1:country-region st="on">U.S.</st1:country-region> and <st1:country-region st="on"><st1:place st="on">Canada</st1:place></st1:country-region> met to codify the best practices into what became known as the <a href="http://en.wikipedia.org/wiki/Uniform_Standards_of_Professional_Appraisal_Practice" title="Uniform Standards of Professional Appraisal Practice">Uniform Standards of Professional Appraisal Practice</a>, or USPAP. The <a href="http://en.wikipedia.org/w/index.php?title=Savings_and_Loan_Crisis&action=edit" title="Savings and Loan Crisis">Savings and Loan Crisis</a> in the <st1:country-region st="on"><st1:place st="on">U.S.</st1:place></st1:country-region> resulted in increased Federal regulation of the mortgage lending process via the Financial Institutions Reform, Recovery and Enforcement Act of 1991. A portion of this act required federal lending regulators to adopt appraisal standards. A not-for-profit organization, the <a href="http://en.wikipedia.org/w/index.php?title=Appraisal_Foundation&action=edit" title="Appraisal Foundation">Appraisal Foundation</a> (TAF), was formed by the same organizations which had developed USPAP, and the copyright for USPAP was signed over to TAF. Federal oversight of TAF is provided by the Appraisal Subcommittee, made up of representatives of various Federal lending regulators. TAF carries out its work through two boards: the Appraisal Standards Board promulgates and updates USPAP; the Appraisal Qualifications Board (AQB) promulgates minimum recommended standards for appraiser certification and licensure. During the 1990s, all of the states adopted USPAP as the governing standards within their states and developed licensure standards which met or exceeded the recommendations of TAF. Also, the various state and federal courts have adopted USPAP for real estate litigation and all of the federally lending regulators adopt USPAP for mortgage finance appraisal.<sup id="_ref-6"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-6" title="">[7]</a></sup><o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In addition, there are professional appraisal organizations, organized as private not-for-profits, which date to the Great Depression of the 1930s. One of the oldest in the <st1:country-region st="on"><st1:place st="on">U.S.</st1:place></st1:country-region> is the American Society of Farm Managers and Rural Appraisers (ASFMRA), founded in 1929.<sup id="_ref-7"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-7" title="">[8]</a></sup> Others were founded as needed and opportunity arose in specialized fields, such as the Appraisal Institute (AI) and the American Society of Appraisers (ASA) founded in the 1930s, the International Right of Way Association and the National Association of Realtors which were founded after World War II. These organizations all existed to establish and enforce standards, but their influence has waned as the government increases appraisal regulation. In March 2007, three of these organizations (ASFMRA, ASA, and AI) announced an agreement in principle to merge. NAIFA (National Association of Independent Fee Appraisers), a charter member of The Appraisal Foundation, helped to write Title XI, the Real Estate Appraisal Reform Amendments. It was founded in 1961.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The best known professional organization of real estate appraisers in <st1:country-region st="on"><st1:place st="on">America</st1:place></st1:country-region> is the <a href="http://en.wikipedia.org/wiki/Appraisal_Institute" title="Appraisal Institute">Appraisal Institute</a>. It was formed in from the merger of the American Institute of Real Estate Appraisers and the Society of Real Estate Appraisers. Founded along with others in the 1930's, the two organizations merged in the 1990's to form the <a href="http://en.wikipedia.org/wiki/Appraisal_Institute" title="Appraisal Institute">Appraisal Institute</a> (AI). This group awards two professional designations: <i>SRA</i>, to residential appraisers, and <i>MAI</i>, to commercial appraisers.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">Other leading appraisal organizations include the <a href="http://en.wikipedia.org/w/index.php?title=American_Society_of_Appraisers&action=edit" title="American Society of Appraisers">American Society of Appraisers</a>, <a href="http://en.wikipedia.org/w/index.php?title=National_Association_of_Independent_Fee_Appraisers&action=edit" title="National Association of Independent Fee Appraisers">National Association of Independent Fee Appraisers</a>, and the <a href="http://en.wikipedia.org/w/index.php?title=National_Association_of_Master_Appraisers&action=edit" title="National Association of Master Appraisers">National Association of Master Appraisers</a>, which were also founding sponsor-members of the Appraisal Foundation.<sup id="_ref-8"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-8" title="">[9]</a></sup> In recent years, the Royal Institution of Chartered Surveyors (<a href="http://en.wikipedia.org/wiki/RICS" title="RICS">RICS</a>) has become highly regarded in the <st1:country-region st="on"><st1:place st="on">US</st1:place></st1:country-region>, and has formed a collaboration with the Counselors of Real Estate, a division of the <a href="http://en.wikipedia.org/wiki/National_Association_of_Realtors" title="National Association of Realtors">National Association of Realtors</a>. RICS, which is headquartered in <st1:city st="on"><st1:place st="on">London</st1:place></st1:City>, operates on a global scale and awards the designations <i>MRICS</i> and <i>FRICS</i> to Members and Fellows of RICS. The <a href="http://en.wikipedia.org/wiki/Real_Estate_Counseling_Group_of_America" title="Real Estate Counseling Group of America">Real Estate Counseling Group of America</a> is a small group of the top appraisers and real estate analysts in the <st1:country-region st="on"><st1:place st="on">US</st1:place></st1:country-region> who collectively have authored a disproportionately large body of appraisal methodology.<o:p></o:p></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="United_Kingdom" id="United_Kingdom"></a><st1:country-region st="on"><st1:place st="on"><span class="mw-headline">United Kingdom</span></st1:place></st1:country-region><o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In the <a href="http://en.wikipedia.org/wiki/United_Kingdom" title="United Kingdom">UK</a>, real estate appraisal is known as <i>property valuation</i> and a real estate appraiser is a <i>land valuer</i> or <i>property valuer</i> (usually a qualified <a href="http://en.wikipedia.org/w/index.php?title=Chartered_surveyor&action=edit" title="Chartered surveyor">chartered surveyor</a> who specialises in property valuation). Property valuation in the <st1:country-region st="on"><st1:place st="on">UK</st1:place></st1:country-region> is regulated by the <a href="http://en.wikipedia.org/wiki/Royal_Institution_of_Chartered_Surveyors" title="Royal Institution of Chartered Surveyors">Royal Institution of Chartered Surveyors</a> (RICS), a professional body encompassing all of the building and property-related professions. The RICS professional guidelines for valuers are published in the <i>RICS Appraisal and Valuation Standards</i>, commonly known as the <i>Red Book</i>. While based in the <st1:country-region st="on">UK</st1:country-region>, RICS is a global organization and has become very active in the <st1:country-region st="on"><st1:place st="on">US</st1:place></st1:country-region> in recent years through its affiliation with the Counselors of Real Estate, a division of the National Association of Realtors.<o:p></o:p></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="Germany" id="Germany"></a><st1:country-region st="on"><st1:place st="on"><span class="mw-headline">Germany</span></st1:place></st1:country-region><o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In <a href="http://en.wikipedia.org/wiki/Germany" title="Germany">Germany</a>, real estate appraisal is known as real estate valuation (<i>Immobilienbewertung</i>). Real estate appraisers (<i>Immobilienbewerter</i> or <i>Gutachter</i>) can qualify to become a <i>Öffentlich bestellter und vereidigter Sachverständiger</i> (officially appointed and sworn expert). However, this formerly very important title has lost a lot of its importance over the past years, but still is of some value in court procedures. The title is not generally required for appraisals.<o:p></o:p></p><div style="text-align: justify;"> </div><h4 style="font-family: courier new; text-align: justify;"><a name="Governing_authorities" id="Governing_authorities"></a><span class="mw-headline">Governing authorities</span><o:p></o:p></h4><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The real estate appraisal practice in <st1:country-region st="on"><st1:place st="on">Germany</st1:place></st1:country-region> is partly codified by law. The federal <a href="http://en.wikipedia.org/w/index.php?title=Baugesetzbuch&action=edit" title="Baugesetzbuch">Baugesetzbuch</a> (abbr. BauGB, "German statutory code on building and construction'") contains guidelines on governing authorities, defines the term market value and refers to continuative rules (chapter 3, articles 192 ff.). Each municipality (city or administrative district) has to form a <i>Gutachterausschuss</i> (appraisal committee), consisting of a chairman and honorary members <sup id="_ref-9"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-9" title="">[10]</a></sup>. The committee gathers information on all real estate deals (it is mandatory to send a copy of each notarial purchase contract to the <i>Gutachterausschuss</i>) and includes it in the <i>Kaufpreissammlung</i> (purchase price database). Most committees publish an official real estate market report every two years, in which besides other information on comparables the land value is determined. The committees also perform appraisals on behalf of public authorities.<o:p></o:p></p><div style="text-align: justify;"> </div><h4 style="font-family: courier new; text-align: justify;"><a name="Federal_regulations" id="Federal_regulations"></a><span class="mw-headline">Federal regulations</span><o:p></o:p></h4><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The BauGB defines the <i>Verkehrswert</i> or <i>Marktwert</i> (market value, both terms with identical meaning) as follows: "The market value is determined by the price that can be realised at the date of valuation, in an arm's length transaction, with due regard to the legal situation and the effective characteristics, the nature and lay of the premises or any other subject of the valuation" <sup id="_ref-10"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-10" title="">[11]</a></sup> (non-official translation). The intention, as in other countries, is to include all objective influences and to exclude all influences resulting from the subjective circumstances of the involved parties.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">This federal law is supported by the <i>Wertermittlungsverordnung</i> (abbr. WertV, "regulation on the determination of value") <sup id="_ref-11"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-11" title="">[12]</a></sup>. The WertV defines the codified valuation approaches and the general valuation technique. German codified valuation approaches (other apporaches such as DCF or residual approach are also permitted, but not codified) are the:<o:p></o:p></p><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal"><i>Vergleichswertverfahren</i> (sales comparison approach) - used where good evidence of previous sales is available and for owner-occupied assets, especially condominiums and single-family houses;<o:p></o:p></li><li class="MsoNormal"><i><a href="http://en.wikipedia.org/wiki/German_income_approach" title="German income approach">Ertragswertverfahren</a></i> (German income approach) - standard procedure for property that produces future cash flows from the letting of the property;<o:p></o:p></li><li class="MsoNormal"><i>Sachwertverfahren</i> (German cost approach) - used for specialised property where none of the above approaches applies, e. g. public buildings.<o:p></o:p></li></ul><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">WertV's general regulations are further supported by the <i>Wertermittlungsrichtlinie</i> (abbr. WertR, "directive on the determination of value") <sup id="_ref-12"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-12" title="">[13]</a></sup>. The WertR provides templates for calculations, tables (e. g. economic depreciation) and guidelines for the consideration of different influences. WertV and WertR are not binding for appraisals for nonofficial use, nonetheless they should be regarded as <a href="http://en.wikipedia.org/wiki/Best_practice" title="Best practice">best practice</a> or Generally Accepted (German) Valuation Practice (GAVP).<o:p></o:p></p><div style="text-align: justify;"> </div><h4 style="font-family: courier new; text-align: justify;"><a name="Comments_on_German_GAVP" id="Comments_on_German_GAVP"></a><span class="mw-headline">Comments on German GAVP</span><o:p></o:p></h4><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In most regards Generally Accepted (German) Valuation Principles is consistent with international practice. The investment market weighs the income approach most heavily. However, there are some important differences:<o:p></o:p></p><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal">Land and improvements are treated separately. German GAVP assumes that the land can be used indefinitely, but the buildings have a limited lifespan; This coincides with the balancing of the assets. The value of the land is determined by the sales comparison approach in both the income and cost approaches, using the data accumulated by the <i>Gutachterausschuss</i> which is then added to the building value.<o:p></o:p></li><li class="MsoNormal">In order to account for the usage of the land, the <a href="http://en.wikipedia.org/wiki/Net_operating_income" title="Net operating income">net operating income</a> is reduced by the <i>Liegenschaftszins</i> (interest paid to the land-owner by the owner of the building, i.e. ground rent). The <i>Liegenschaftszins</i> is the product of the land value and the <i>Liegenschaftszinssatz</i> (interest rate for land-use). The <i>Liegenschaftszinssatz</i> is the equivalent of the yield - with some important differences - and is also determined by the <i>Gutachterausschuss</i>.<o:p></o:p></li><li class="MsoNormal">Unlike the All Risks Yield (ARY) in <st1:country-region st="on"><st1:place st="on">UK</st1:place></st1:country-region> practice, the <i>Liegenschaftszinssatz</i> (abbr. LZ) does not include an allowance for default (not to be confused with structural vacancy), therefore this needs to be subtracted from <a href="http://en.wikipedia.org/w/index.php?title=Gross_operating_income&action=edit" title="Gross operating income">gross operating income</a>. As a result, the <i>Liegenschaftszinssatz</i> will usually be lower than the All Risks Yield.<o:p></o:p></li><li class="MsoNormal">Based on the assumption that the economic life of the improvements is limited, the yield and remaining economic life determine the building value from the net operating income.<o:p></o:p></li><li class="MsoNormal">It should also be observed that contracts in <st1:country-region st="on">Germany</st1:country-region> generally prescribe that the landlord bears a higher portion of maintenance and operating costs than their counterparts in the <st1:country-region st="on">US</st1:country-region> and <st1:country-region st="on"><st1:place st="on">UK</st1:place></st1:country-region>.<o:p></o:p></li></ul><div style="text-align: justify;"> </div><h4 style="font-family: courier new; text-align: justify;"><a name="Criticism" id="Criticism"></a><span class="mw-headline">Criticism</span><o:p></o:p></h4><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">Mathematically the distinction between land and improvements in the income approach will have no impact on the overall value when the remaining economic life is more than thirty years. For this reason it has become quite common to use the <i>Vereinfachtes Ertragswertverfahren</i> (simplified income approach), omitting the land value and the <i>Liegenschaftszins</i>. However, the separate treatment of land and buildings leads to more precise results for older buildings, especially for commercial buildings, which typically have a shorter economic life than residential buildings.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">An advantage of the comparatively high degree of standardization practiced by professional appraisers, is the greater ability to check an appraisal for inconsistency, accuracy and transparency.<o:p></o:p></p><div style="text-align: justify;"> </div><h4 style="font-family: courier new; text-align: justify;"><a name="Professional_organisations" id="Professional_organisations"></a><span class="mw-headline">Professional organisations</span><o:p></o:p></h4><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">The Federal German Organisation of Appointed and Sworn Experts (<i>Bundesverband Deutscher Sachverständiger und Fachgutachter</i>, abbr. BDSF)<sup id="_ref-13"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-13" title="">[14]</a></sup> is the main professional organisation encompassing the majority of licensed appraisers in <st1:country-region st="on"><st1:place st="on">Germany</st1:place></st1:country-region>. In recent years, with the move towards a more global outlook in the valuation profession, the <a href="http://en.wikipedia.org/wiki/RICS" title="RICS">RICS</a> has gained a foothold in <st1:country-region st="on"><st1:place st="on">Germany</st1:place></st1:country-region>, somewhat at the expense of the BDSF.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">With special focus on hypothecary value, in 1996, German banks with real estate financing activities formed the <i>HypZert GmbH</i><sup id="_ref-14"><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_note-14" title="">[15]</a></sup>, an association for the certification of real estate valuers. A <i>HypZert</i> qualification is regarded as mandatory for their appraisers by many German banks.<o:p></o:p></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><a name="Israel" id="Israel"></a><st1:country-region st="on"><st1:place st="on"><span class="mw-headline">Israel</span></st1:place></st1:country-region><o:p></o:p></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">In <a href="http://en.wikipedia.org/wiki/Israel" title="Israel">Israel</a>, the real estate appraisal profession is regulated by the Council of Land Valuers, an organ of the Ministry of Justice; the largest professional organisation, encompassing the majority of appraisers/land valuers is the Association of Land Valuers. Valuers must be registered with the Council, which is a statutory body set up by law, and which oversees the training and administers the national professional exams that are a prerequisite for attaining registration. In 2005 the Council set up a Valuation Standards Committee with the purpose of developing and promulgating Standards that would reflect best practice; these have tended to follow a rules-based approach.<o:p></o:p></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;">Historically, most valuations in <st1:country-region st="on"><st1:place st="on">Israel</st1:place></st1:country-region> were statutory valuations (such as valuations performed for purposes of <a href="http://en.wikipedia.org/wiki/Betterment" title="Betterment">Betterment Tax</a> - a tax administered on any gains accruing to the property by way of changes to the local planning) as well as valuations performed for purposes of bank lending. This is now changing: since the adoption in <st1:country-region st="on"><st1:place st="on">Israel</st1:place></st1:country-region> of <a href="http://en.wikipedia.org/wiki/IFRS" title="IFRS">International Financial Reporting Standards (IFRS)</a> (were adopted in 2006; will fully come into effect in 2008), the profession has been additionally engaged in performing valuations for purposes of financial reporting.<o:p></o:p></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><a name="See_also" id="See_also"></a><span class="mw-headline">See also</span><o:p></o:p></h2><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;"><span class="boilerplateseealso"><i>See also: <a href="http://en.wikipedia.org/wiki/German_income_approach" title="German income approach">German income approach</a></i></span><o:p></o:p></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><a name="Further_reading" id="Further_reading"></a><span class="mw-headline">Further reading</span><o:p></o:p></h2><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal">Baum, A. and Mackmin, D. (1995) <i>The Income Approach to Property Valuation</i> (3rd Edition). Routledge, <st1:city st="on"><st1:place st="on">London</st1:place></st1:City><o:p></o:p></li><li class="MsoNormal">Brown, G.R. and Matysiak, G.A. (1999) <i>Real Estate Investment: A Capital Market Approach</i>. Financial Times, <st1:city st="on"><st1:place st="on">London</st1:place></st1:City><o:p></o:p></li><li class="MsoNormal">Isaac, D. (2002) <i>Property Valuation Principles</i>, Palgrave, <st1:city st="on"><st1:place st="on">London</st1:place></st1:City><o:p></o:p></li><li class="MsoNormal">Rees, W.H. and <st1:city st="on"><st1:place st="on">Hayward</st1:place></st1:City>, R.E.H. (ed.) (2000) <i>Valuation: Principles into Practice</i> (5th edition). Estates Gazette, <st1:city st="on"><st1:place st="on">London</st1:place></st1:City><o:p></o:p></li><li class="MsoNormal">Simons, Robert (2007) <i>When Bad Things Happen to Good Property</i> Environmental Law Institute, <st1:place st="on"><st1:city st="on">Washington</st1:City>, <st1:state st="on">DC</st1:State></st1:place><o:p></o:p></li><li class="MsoNormal">The Appraisal Foundation, <i>Uniform Standards of Professional Appraisal Practice</i>. Updated and published annually through the 2006 edition; henceforth, updated editions are to appear biannually.<o:p></o:p></li><li class="MsoNormal">The Appraisal Institute, <i>The Appraisal of Real Estate</i> (12th Edition). An industry-recognized textbook.<o:p></o:p></li></ul><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><a name="References" id="References"></a><span class="mw-headline">References</span><o:p></o:p></h2><div style="text-align: justify;"> </div><ol style="font-family: courier new; text-align: justify;" start="1" type="1"><li class="MsoNormal" id="_note-0"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-0" title="">^</a></b> <a href="https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/1004.pdf" title="https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/1004.pdf">https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/1004.pdf</a><o:p></o:p></li><li class="MsoNormal" id="_note-1"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-1" title="">^</a></b> IVS 1 - Market Value Basis of Valuation, Seventh Edition<o:p></o:p></li><li class="MsoNormal" id="_note-2"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-2" title="">^</a></b> <i>The Appraisal of Real Estate</i>, 12th Ed. (<st1:city st="on"><st1:place st="on">Chicago</st1:place></st1:City>: The Appraisal Institute)<o:p></o:p></li><li class="MsoNormal" id="_note-3"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-3" title="">^</a></b> FNMA form 1025, March 2005<o:p></o:p></li><li class="MsoNormal" id="_note-4"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-4" title="">^</a></b> See, for example, <a href="http://en.wikipedia.org/wiki/John_A._Kilpatrick" title="John A. Kilpatrick">John A. Kilpatrick</a>, Valuation of Brownfield Properties, Chapter 29 in <a href="http://en.wikipedia.org/wiki/LexisNexis" title="LexisNexis">LexisNexis</a> Matthew Bender's <b>Brownfield Law and Practice</b>, 2007<o:p></o:p></li><li class="MsoNormal" id="_note-5"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-5" title="">^</a></b> <a href="http://www.rics.org/Property/Residentialproperty/leading_edge_series.htm" title="http://www.rics.org/Property/Residentialproperty/leading_edge_series.htm">"Valuation"</a>, RICS Organization<o:p></o:p></li><li class="MsoNormal" id="_note-6"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-6" title="">^</a></b> <a href="http://www.appraisalfoundation.org/" title="http://www.appraisalfoundation.org">[1]</a> The Appraisal Foundation<o:p></o:p></li><li class="MsoNormal" id="_note-7"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-7" title="">^</a></b> <a href="http://www.asfmra.org/" title="http://www.asfmra.org/">http://www.asfmra.org/</a><o:p></o:p></li><li class="MsoNormal" id="_note-8"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-8" title="">^</a></b> <a href="http://commerce.appraisalfoundation.org/html/2006%20USPAP/toc.htm" title="http://commerce.appraisalfoundation.org/html/2006%20USPAP/toc.htm">2006 "USPAP Online"</a>, Appraisal Foundation<o:p></o:p></li><li class="MsoNormal" id="_note-9"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-9" title="">^</a></b> <a href="http://bundesrecht.juris.de/bbaug/__192.html" title="http://bundesrecht.juris.de/bbaug/__192.html">Article 192 BauGB</a><o:p></o:p></li><li class="MsoNormal" id="_note-10"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-10" title="">^</a></b> <a href="http://bundesrecht.juris.de/bbaug/__194.html" title="http://bundesrecht.juris.de/bbaug/__194.html">Definition of market value in German</a><o:p></o:p></li><li class="MsoNormal" id="_note-11"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-11" title="">^</a></b> <a href="http://www.lgnapp.niedersachsen.de/vkv/allgemein/gesetze/b3200171.htm" title="http://www.lgnapp.niedersachsen.de/vkv/allgemein/gesetze/b3200171.htm">German text of the WertV</a><o:p></o:p></li><li class="MsoNormal" id="_note-12"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-12" title="">^</a></b> <a href="http://www.lgnapp.niedersachsen.de/vkv/allgemein/gesetze/b3200010.htm" title="http://www.lgnapp.niedersachsen.de/vkv/allgemein/gesetze/b3200010.htm">German text of the WertR</a><o:p></o:p></li><li class="MsoNormal" id="_note-13"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-13" title="">^</a></b> <a href="http://www.bdsf.de/" title="http://www.bdsf.de/">German Hompage of the BDSF</a><o:p></o:p></li><li class="MsoNormal" id="_note-14"><b><a href="http://en.wikipedia.org/wiki/Real_estate_appraisal#_ref-14" title="">^</a></b> <a href="http://www.hypzert.de/" title="http://www.hypzert.de/">German page of HypZert GmbH</a><o:p></o:p></li></ol><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;" class="MsoNormal"><o:p> </o:p></p>noerhilmanhttp://www.blogger.com/profile/07501293211100270892noreply@blogger.com1tag:blogger.com,1999:blog-3477859003063791958.post-31266840880254565142007-10-24T12:24:00.000+07:002007-10-24T12:25:02.819+07:00<h1 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Zoning</span></h1><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">From Wikipedia, the free encyclopedia</span></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><b>Zoning</b> <b>is a term</b> used in <a href="http://en.wikipedia.org/wiki/Urban_planning" title="Urban planning">urban planning</a> for a system of <a href="http://en.wikipedia.org/wiki/Land_use" title="Land use">land-use</a><a href="http://en.wikipedia.org/wiki/Regulation" title="Regulation">regulation</a> in various parts of the world, including North America, the United Kingdom<sup>[<i><a href="http://en.wikipedia.org/wiki/Wikipedia:Citing_sources" title="Wikipedia:Citing sources">citation needed</a></i>]</sup>, and Australia. The word is derived from the practice of designating permitted uses of land based on mapped zones which separate one set of land uses from another.</span> </p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><span class="mw-headline">Scope</span></span></h2><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Theoretically<sup>[<i><a href="http://en.wikipedia.org/wiki/Wikipedia:Citing_sources" title="Wikipedia:Citing sources">citation needed</a></i>]</sup>, the primary purpose of zoning is to segregate uses that are thought to be incompatible; in practice, zoning is used as a permitting system to prevent new development from harming existing <a href="http://en.wikipedia.org/wiki/Residency" title="Residency">residents</a> or <a href="http://en.wikipedia.org/wiki/Business" title="Business">businesses</a>. Zoning is commonly controlled by local governments such as <a href="http://en.wikipedia.org/wiki/Counties" title="Counties">counties</a> or <a href="http://en.wikipedia.org/wiki/Municipalities" title="Municipalities">municipalities</a>, though the nature of the zoning regime may be determined by state or national planning authorities. In <st1:country-region st="on"><st1:place st="on">Australia</st1:place></st1:country-region>, land under the control of the Commonwealth (Federal) government is not subject to state planning controls. The <a href="http://en.wikipedia.org/wiki/United_States" title="United States">United States</a> and other federal countries are similar.</span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Zoning may include regulation of the kinds of activities which will be acceptable on particular <a href="http://en.wikipedia.org/wiki/Lot" title="Lot">lots</a> (such as open space, residential, <a href="http://en.wikipedia.org/wiki/Agricultural" title="Agricultural">agricultural</a>, <a href="http://en.wikipedia.org/wiki/Commerce" title="Commerce">commercial</a> or <a href="http://en.wikipedia.org/wiki/Industry" title="Industry">industrial</a>), the densities at which those activities can be performed (from low-density <a href="http://en.wikipedia.org/wiki/Housing" title="Housing">housing</a> such as single family homes to high-density such as <a href="http://en.wikipedia.org/wiki/Tower_block" title="Tower block">high-rise apartment buildings</a>), the height of buildings, the amount of space structures may occupy, the location of a building on the lot (<a href="http://en.wikipedia.org/wiki/Building_setback" title="Building setback">setbacks</a>), the proportions of the types of space on a lot (for example, how much <a href="http://en.wikipedia.org/wiki/Landscape" title="Landscape">landscaped</a> space and how much <a href="http://en.wikipedia.org/wiki/Pavement_%28roads%29" title="Pavement (roads)">paved</a> space), and how much <a href="http://en.wikipedia.org/wiki/Parking" title="Parking">parking</a><a href="http://en.wikipedia.org/wiki/Victoria%2C_Australia" title="Victoria, Australia">Victoria</a>, <st1:country-region st="on">Australia</st1:country-region>, land use zones are combined with a system of planning scheme overlays to account for the multiplicity of factors that impact on desirable urban outcomes in any location.</span> must be provided. The details of how individual planning systems incorporate zoning into their regulatory regimes varies though the intention is always similar. For example, in the state of </p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Most zoning systems have a procedure for granting <a href="http://en.wikipedia.org/wiki/Variance_%28land_use%29" title="Variance (land use)">variances</a><a href="http://en.wikipedia.org/wiki/Property" title="Property">property</a> in question.</span> (exceptions to the zoning rules), usually because of some perceived hardship caused by the particular nature of the </p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Types of residential zones would be R1 for <a href="http://en.wikipedia.org/wiki/Single-family_home" title="Single-family home">single-family homes</a>, R2 for <a href="http://en.wikipedia.org/w/index.php?title=Two-family_home&action=edit" title="Two-family home">two-family homes</a>, and R3 for <a href="http://en.wikipedia.org/wiki/Apartment_building" title="Apartment building">multiple-family homes</a>.</span></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Types"></a><span class="mw-headline">Types</span></span></h2><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Zoning codes have evolved over the years as urban planning theory has changed, legal constraints have fluctuated, and political priorities have shifted.<sup><a href="http://en.wikipedia.org/wiki/Zoning#_note-0" title="">[1]</a></sup> The various approaches to zoning can be divided into four broad categories: Euclidean, Performance, Incentive, and Design-based.</span></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Euclidean"></a><span class="mw-headline">Euclidean</span></span></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Named for the type of zoning code adopted in the town of <a href="http://en.wikipedia.org/wiki/Euclid%2C_Ohio" title="Euclid, Ohio">Euclid, Ohio</a>, Euclidean zoning codes are by far the most prevalent in the <st1:country-region st="on"><st1:place st="on">United States</st1:place></st1:country-region>,<sup>[<i><a href="http://en.wikipedia.org/wiki/Wikipedia:Citing_sources" title="Wikipedia:Citing sources">citation needed</a></i>]</sup> used extensively in small towns and large cities alike. Also known as "Building Block" zoning, Euclidean zoning is characterized by the segregation of land uses into specified geographic districts and dimensional standards stipulating limitations on the magnitude of development activity that is allowed to take place on lots within each type of district. Typical types of land-use districts in Euclidean zoning are: residential (single-family), residential (multi-family), commercial, and industrial. Uses within each district are usually heavily prescribed to exclude other types of uses (residential districts typically disallow commercial or industrial uses). Some "accessory" or "conditional" uses may be allowed in order to accommodate the needs of the primary uses. Dimensional standards apply to any structures built on lots within each zoning district, and typically take the form of setbacks, height limits, minimum lot sizes, lot coverage limits, and other limitations on the building envelope.</span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Euclidean zoning is utilized by some municipalities because of its relative effectiveness, ease of implementation (one set of explicit, prescriptive rules), long-established legal precedent, and familiarity to planners and design professionals.</span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">However, Euclidean zoning has received heavy criticism for its lack of flexibility and institutionalization of now-outdated planning theory (see below).</span></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Performance"></a><span class="mw-headline">Performance</span></span></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Also known as "Effects-based planning", Performance Zoning uses performance-based or goal-oriented criteria to establish review parameters for proposed development projects in any area of a municipality. Performance zoning often utilizes a "points-based" system whereby a property developer can apply credits toward meeting established zoning goals through selecting from a 'menu' of compliance options (some examples include: mitigation of environmental impacts, providing public amenities, building affordable housing units, etc.). Additional discretionary criteria may also be established as part of the review process.</span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">The appeal of Performance Zoning lies in its high level of flexibility, rationality, transparency and accountability.<sup>[<i><a href="http://en.wikipedia.org/wiki/Wikipedia:Citing_sources" title="Wikipedia:Citing sources">citation needed</a></i>]</sup> Performance Zoning avoids the arbitrary nature of the Euclidian approach, and better accommodates market principles and private property rights with environmental protection. However, performance zoning can be extremely difficult to implement and can require a high level of discretionary activity on the part of the supervising authority.</span></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Incentive"></a><span class="mw-headline">Incentive</span></span></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">First implemented in Chicago and New York City, incentive zoning is intended to provide a reward-based system to encourage development that meets established urban development goals.<sup>[<i><a href="http://en.wikipedia.org/wiki/Wikipedia:Citing_sources" title="Wikipedia:Citing sources">citation needed</a></i>]</sup></span> Typically, a base level of prescriptive limitations on development will be established and an extensive list of incentive criteria will be established for developers to adopt or not at their discretion. A reward scale connected to the incentive criteria provides an enticement for developers to incorporate the desired development criteria into their projects. Common examples include FAR (floor-area-ratio) bonuses for affordable housing provided on-site and height limit bonuses for the inclusion of public amenities on-site.</p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Incentive zoning allows for a high degree of flexibility, but can be complex to administer. The more a proposed development takes advantage of incentive criteria, the more closely it has to be reviewed on a discretionary basis. The initial creation of the incentive structure in order to best serve planning priorities can also be challenging and often requires extensive ongoing revision to maintain balance between incentive magnitude and value given to developers.</span></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Form-based"></a><span class="mw-headline">Form-based</span></span></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Form-based zoning relies on rules applied to development sites according to both prescriptive and potentially discretionary criteria. These criteria are typically dependent on lot size, location, proximity, and other various site- and use-specific characteristics.</span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a href="http://en.wikipedia.org/wiki/Form_based_codes" title="Form based codes">Design-based codes</a> offer considerably more flexibility in building uses than do Euclidean codes, but, as they are comparatively new, may be more challenging to create. When form-based codes do not contain appropriate illustrations and diagrams, they have been criticized as being difficult to interpret.</span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">One example of a recently adopted code with design-based features is the <a href="http://www.louisvilleky.gov/PlanningDesign/ldc/" title="http://www.louisvilleky.gov/PlanningDesign/ldc/">Land Development Code</a> adopted by <a href="http://en.wikipedia.org/wiki/Louisville%2C_Kentucky" title="Louisville, Kentucky">Louisville, Kentucky</a> in 2003. This zoning code creates "form districts" for Louisville Metro. Each form district intends to recognize that some areas of the city are more suburban in nature, while others are more urban. Building setbacks, heights, and design features vary according to the form district. As an example, in a "traditional neighborhood" form district, a maximum setback might be 15 feet from the property line, while in a suburban "neighborhood" there may be no maximum setback.</span></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Zoning_in_UK"></a><span class="mw-headline">Zoning in <st1:country-region st="on"><st1:place st="on">UK</st1:place></st1:country-region></span></span></h2><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;"><span style="font-size:100%;"><i>Main article: <a href="http://en.wikipedia.org/wiki/Development_control_in_the_United_Kingdom" title="Development control in the United Kingdom">Development control in the United Kingdom</a></i></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Development Control or Planning Control is the element of the <a href="http://en.wikipedia.org/wiki/United_Kingdom" title="United Kingdom">United Kingdom</a>'s system of <a href="http://en.wikipedia.org/wiki/Town_and_country_planning_in_the_United_Kingdom" title="Town and country planning in the United Kingdom">Town and Country Planning</a> through which <a href="http://en.wikipedia.org/wiki/Local_government_in_the_United_Kingdom" title="Local government in the United Kingdom">local government</a> regulates <a href="http://en.wikipedia.org/wiki/Land_use" title="Land use">land use</a> and new building. It relies on the "plan-led system" whereby <a href="http://en.wikipedia.org/wiki/Development_Plan" title="Development Plan">Development Plans</a> are formed and the public consulted. Subsequent development requires <a href="http://en.wikipedia.org/wiki/Planning_permission" title="Planning permission">Planning permission</a>, which will be granted or refused with reference to the Development Plan as a material consideration.</span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">There are 421 <a href="http://en.wikipedia.org/wiki/Local_Planning_Authority" title="Local Planning Authority">Local Planning Authorities</a> (LPAs) in the <a href="http://en.wikipedia.org/wiki/United_Kingdom" title="United Kingdom">United Kingdom</a>. Generally they are the local <a href="http://en.wikipedia.org/wiki/Borough_status_in_the_United_Kingdom#Modern_borough_status" title="Borough status in the United Kingdom">Borough</a> or <a href="http://en.wikipedia.org/wiki/Districts_of_England#Types" title="Districts of England">District Council</a><a href="http://en.wikipedia.org/wiki/Unitary_authority" title="Unitary authority">unitary authority</a>. Development involving <a href="http://en.wikipedia.org/wiki/Mining" title="Mining">mining</a>, <a href="http://en.wikipedia.org/wiki/Mineral" title="Mineral">minerals</a> or <a href="http://en.wikipedia.org/wiki/Waste_management" title="Waste management">waste disposal</a> matters is dealt with by <a href="http://en.wikipedia.org/wiki/County_council" title="County council">County Councils</a> in <a href="http://en.wikipedia.org/wiki/Shire_county" title="Shire county">non-metropolitan areas</a>. Within <a href="http://en.wikipedia.org/wiki/National_parks_of_the_United_Kingdom" title="National parks of the United Kingdom">national parks</a>, it is the <a href="http://en.wikipedia.org/wiki/National_Park_Authority" title="National Park Authority">National Park Authority</a> that determines planning applications.</span> or a </p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Zoning_in_Australia"></a><span class="mw-headline">Zoning in <st1:country-region st="on"><st1:place st="on">Australia</st1:place></st1:country-region></span></span></h2><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;"><span style="font-size:100%;"><i>Main article: <a href="http://en.wikipedia.org/w/index.php?title=Development_control_in_Australia&action=edit" title="Development control in Australia">Development control in Australia</a></i></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a href="http://en.wikipedia.org/wiki/Statutory_planning" title="Statutory planning">Statutory planning</a> otherwise known as town planning, development control or development management, refers to the part of the planning process that is concerned with the regulation and management of changes to land use and development.<sup><a href="http://en.wikipedia.org/wiki/Zoning#_note-1" title="">[2]</a></sup></span></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Zoning_in_New_Zealand"></a><span class="mw-headline">Zoning in <st1:country-region st="on"><st1:place st="on">New Zealand</st1:place></st1:country-region></span></span></h2><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;"><span style="font-size:100%;"><i>Main article: <a href="http://en.wikipedia.org/wiki/Resource_Management_Act_1991" title="Resource Management Act 1991">Resource Management Act 1991</a></i></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a href="http://en.wikipedia.org/wiki/New_Zealand%27s" title="New Zealand's">New Zealand's</a> planning system is grounded in effects-based Performance Zoning under the Resource Management Act.</span></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Zoning_in_USA"></a><span class="mw-headline">Zoning in <st1:country-region st="on"><st1:place st="on">USA</st1:place></st1:country-region></span></span></h2><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 36pt; font-family: courier new; text-align: justify;"><span style="font-size:100%;"><i>Main article: <a href="http://en.wikipedia.org/wiki/Zoning_in_the_United_States" title="Zoning in the United States">Zoning in the United States</a></i></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Zoning regulations fall under the <a href="http://en.wikipedia.org/wiki/Police_power" title="Police power">police power</a> rights state governments may exercise over private <a href="http://en.wikipedia.org/wiki/Real_property" title="Real property">real property</a>.</span></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Origins_and_history"></a><span class="mw-headline">Origins and history</span></span></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Special laws and regulations were long made, restricting the places where particular businesses should be carried on. In the 1860s a specific State statute prohibited all commercial activities along <a href="http://en.wikipedia.org/wiki/Eastern_Parkway_%28Brooklyn%29" title="Eastern Parkway (Brooklyn)">Eastern Parkway (Brooklyn)</a>, setting a trend for future decades.<sup>[<i><a href="http://en.wikipedia.org/wiki/Wikipedia:Citing_sources" title="Wikipedia:Citing sources">citation needed</a></i>]</sup></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">In 1916, <a href="http://en.wikipedia.org/wiki/New_York_City" title="New York City">New York City</a> adopted the <a href="http://en.wikipedia.org/wiki/1916_Zoning_Resolution" title="1916 Zoning Resolution">first zoning regulations</a> to apply city-wide as a reaction to construction of The <a href="http://en.wikipedia.org/wiki/Equitable_Building_%28Manhattan%29" title="Equitable Building (Manhattan)">Equitable Building</a> (which still stands at 120 Broadway). The building towered over the neighboring residences, completely covering all available land area within the property boundary, blocking windows of neighboring buildings and diminishing the availability of sunshine for the people in the affected area. <a href="http://en.wikipedia.org/wiki/1916_Zoning_Resolution" title="1916 Zoning Resolution">These laws</a>, written by a <a href="http://en.wikipedia.org/wiki/Government_agency" title="Government agency">commission</a> headed by <a href="http://en.wikipedia.org/wiki/Edward_Bassett" title="Edward Bassett">Edward Bassett</a> and signed by <a href="http://en.wikipedia.org/wiki/Mayor" title="Mayor">Mayor</a> <a href="http://en.wikipedia.org/wiki/John_Purroy_Mitchel" title="John Purroy Mitchel">John Purroy Mitchel</a>, became the <a href="http://en.wikipedia.org/wiki/Blueprint" title="Blueprint">blueprint</a> for zoning in the rest of the country, partly because Bassett headed the group of planning lawyers which wrote <a href="http://en.wikipedia.org/w/index.php?title=The_Standard_State_Zoning_Enabling_Act&action=edit" title="The Standard State Zoning Enabling Act">The Standard State Zoning Enabling Act</a> that was accepted almost without change by most states. The effect of these zoning regulations on the shape of skyscrapers was famously illustrated by architect and illustrator <a href="http://en.wikipedia.org/wiki/Hugh_Ferriss" title="Hugh Ferriss">Hugh Ferriss</a>.</span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">The constitutionality of zoning ordinances was upheld in 1926. The zoning ordinance of <st1:place st="on"><st1:city st="on">Euclid</st1:City>, <st1:state st="on">Ohio</st1:State></st1:place> was challenged in court by a local land owner on the basis that restricting use of property violated the <a href="http://en.wikipedia.org/wiki/Fourteenth_Amendment_to_the_United_States_Constitution" title="Fourteenth Amendment to the United States Constitution">Fourteenth Amendment to the United States Constitution</a>. Though initially ruled unconstitutional by lower courts, the zoning ordinance was upheld by the U.S. Supreme Court.<sup><a href="http://en.wikipedia.org/wiki/Zoning#_note-2" title="">[3]</a></sup>.</span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">By the late 1920s most of the nation had developed a set of zoning regulations that met the needs of the locality.<sup>[<i><a href="http://en.wikipedia.org/wiki/Wikipedia:Citing_sources" title="Wikipedia:Citing sources">citation needed</a></i>]</sup></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">New York City went on to develop ever more complex set of zoning regulations, including <a href="http://en.wikipedia.org/wiki/Floor_area_ratio" title="Floor area ratio">floor-area ratio</a> regulations, <a href="http://en.wikipedia.org/wiki/Air_rights" title="Air rights">air rights</a> and others according to the density-specific <a href="http://en.wikipedia.org/wiki/Need" title="Need">needs</a> of the neighborhoods.</span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Among large populated cities in the <st1:country-region st="on">United States</st1:country-region>, <a href="http://en.wikipedia.org/wiki/Houston" title="Houston">Houston</a> is unique in having no zoning <a href="http://en.wikipedia.org/wiki/Local_ordinance" title="Local ordinance">ordinances</a>. <st1:city st="on"><st1:place st="on">Houston</st1:place></st1:City> voters have rejected efforts to implement zoning in 1948, 1962 and 1993.</span></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="See_also"></a><a name="References"></a><span class="mw-headline">References</span></span></h2><div style="text-align: justify;"> </div><ol style="font-family: courier new; text-align: justify;" start="1" type="1"><li class="MsoNormal"><span style="font-size:100%;"><b><a href="http://en.wikipedia.org/wiki/Zoning#_ref-0" title="">^</a></b> Holm, Ivar (2006). <i>Ideas and Beliefs in Architecture and Industrial design: How attitudes, orientations, and underlying assumptions shape the built environment</i>. <st1:place st="on"><st1:placename st="on">Oslo</st1:PlaceName> <st1:placetype st="on">School</st1:PlaceType></st1:place> of Architecture and Design. <a href="http://en.wikipedia.org/w/index.php?title=Special:Booksources&isbn=8254701741">ISBN 8254701741</a>.</span></li><li class="MsoNormal"><span style="font-size:100%;"><b><a href="http://en.wikipedia.org/wiki/Zoning#_ref-1" title="">^</a></b> Gleeson B. and Low N., <i>Australian Urban Planning: New Challenges, New Agendas</i>, Allen & Unwin, St Leonards, 2000.</span></li><li class="MsoNormal"><span style="font-size:100%;"><b><a href="http://en.wikipedia.org/wiki/Zoning#_ref-2" title="">^</a></b> <a href="http://en.wikipedia.org/wiki/Village_of_Euclid%2C_Ohio_v._Ambler_Realty_Co." title="Village of Euclid, Ohio v. Ambler Realty Co.">Village of Euclid, Ohio v. Ambler Realty Co.</a> (1926)</span></li></ol><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;" class="MsoNormal"><span style="font-size:100%;"><o:p> </o:p></span></p>noerhilmanhttp://www.blogger.com/profile/07501293211100270892noreply@blogger.com0tag:blogger.com,1999:blog-3477859003063791958.post-2795610543056118272007-10-24T12:11:00.000+07:002007-10-24T12:26:25.292+07:00Peta<div style="text-align: justify;font-family:courier new;"><span style="font-size:100%;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://3.bp.blogspot.com/_pVuIE4UxMDI/Rx7VpggUObI/AAAAAAAAACE/792N9v6k9aM/s1600-h/PETA+2.jpg"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer;" src="http://3.bp.blogspot.com/_pVuIE4UxMDI/Rx7VpggUObI/AAAAAAAAACE/792N9v6k9aM/s400/PETA+2.jpg" alt="" id="BLOGGER_PHOTO_ID_5124768335071033778" border="0" /></a><br /></span></div><div style="text-align: justify;font-family:courier new;"><span style="font-size:100%;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://1.bp.blogspot.com/_pVuIE4UxMDI/Rx7VJAgUOaI/AAAAAAAAAB8/0OpigkcBfnA/s1600-h/PETA1.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="http://1.bp.blogspot.com/_pVuIE4UxMDI/Rx7VJAgUOaI/AAAAAAAAAB8/0OpigkcBfnA/s400/PETA1.jpg" alt="" id="BLOGGER_PHOTO_ID_5124767776725285282" border="0" /></a><br /></span><br /><span style="font-size:100%;">Berikut ini disajikan peta Kota Serang dan Cilegon.<br /></span></div>noerhilmanhttp://www.blogger.com/profile/07501293211100270892noreply@blogger.com0tag:blogger.com,1999:blog-3477859003063791958.post-36655946362331911072007-10-24T11:58:00.000+07:002007-10-24T12:06:24.749+07:00Highest and best use<h1 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Highest and best use<o:p></o:p></span></h1><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">From Wikipedia, the free encyclopedia<o:p></o:p></span></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><b>Highest and best use</b> is a concept in <a href="http://en.wikipedia.org/wiki/Real_estate_appraisal" title="Real estate appraisal">real estate appraisal</a>. It states that the value of a property is directly related to the use of that property; the highest and best use is the reasonably probable use that produces the highest property value. This use, the Highest and Best Use, may or may not be the current use of the property.<o:p></o:p></span></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><span class="mw-headline">Test of highest and best use</span><o:p></o:p></span></h2><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">In order to be considered as the Highest and Best Use of a property, any potential use must pass as series of tests. The exact definition of Highest and Best Use varies, but generally the use must be:<o:p></o:p></span></p><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal"><span style="font-size:100%;">legally allowable<o:p></o:p></span></li><li class="MsoNormal"><span style="font-size:100%;">physically possible<o:p></o:p></span></li><li class="MsoNormal"><span style="font-size:100%;">financially feasible<o:p></o:p></span></li><li class="MsoNormal"><span style="font-size:100%;">maximally productive<o:p></o:p></span></li></ul><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Legally_allowable"></a><span class="mw-headline">Legally allowable</span><o:p></o:p></span></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Only those uses that are or may be allowed can be considered as a potential Highest and Best Use. This may exclude uses that are not now and can not be expected to be allowed by <a href="http://en.wikipedia.org/wiki/Zoning" title="Zoning">zoning</a>, uses forbidden by government regulations, and uses prohibited by deed restrictions or covenants. For example, a property that is in an area that is zoned only for single family residential houses could not legally be used for a commercial or industrial facility.<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Properties with a use that predates existing zoning regulations may be <i>legally nonconforming</i>. Legally nonconforming uses, also called <i>grandfathered uses</i>, are generally considered to be legal uses of the property even though they do not meet existing zoning regulations. Since their use predates the zoning regulations that would have made them illegal, they are "grandfathered in". However, some such uses may not be reproduced if the legally nonconforming improvement is destroyed or damaged beyond a certain point.<o:p></o:p></span></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Physically_possible"></a><span class="mw-headline">Physically possible</span><o:p></o:p></span></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Any potential use must be physically possible given the size, shape, topography, and other characteristics of the site. For example a 40,000 square foot single story warehouse would not fit on a 10,000 square foot site, therefore that use would fail the physical possibility test.<o:p></o:p></span></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Financial_feasibility"></a><span class="mw-headline">Financial feasibility</span><o:p></o:p></span></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">The highest and best use of a property must be financially feasible. This means that the proposed use of a property must generate adequate revenue to justify the costs of construction plus a profit for the developer. In the case of an improved property, with obvious remaining economic life, the question of financial feasibility is somewhat irrelevant. In the case of an improved property with limited remaining economic life, the question of financial feasibility becomes a question of the maximally productive use of the site. If the value of the land As Vacant exceeds the value of the property As Improved, then redevelopment of the site becomes the maximally productive use of the property and continued use of the existing improvements that do not represent the highest net value of the site is considered to be financially unfeasible.<o:p></o:p></span></p><div style="text-align: justify;"> </div><h3 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Maximally_productive_use"></a><span class="mw-headline">Maximally productive use</span><o:p></o:p></span></h3><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Finally the use must generate the highest net return (profit) to the developer. A property that could hypothetically be developed with residential, commercial or industrial development might only have one of those uses as its highest and best use. These three hypothetical development scenarios follow to illustrate the test of maximally productive use.<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Price of Site: $100,000 (remains unchanged in all three examples)<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">_____<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Cost to construct 10,000 SF industrial warehouse: $750,000<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Market Value of 10,000 SF industrial warehouse: $910,000<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Profit for industrial development: 7%<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">_____<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Cost to construct 10,000 SF retail strip center: $1,500,000<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Market Value of 10,000 SF retail strip center: $1,840,000<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Profit for retail development: 15%<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">_____<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Cost to construct 10,000 SF of residential condominiums: $1,200,000<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Market Value of 10,000 SF of residential condominiums: $1,534,000<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">Profit for residential development: 18%<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">_____<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">As the examples illustrate, even though the retail development results in the overall highest market value for the development, the residential development scenario results in the highest net return to the developer and this makes it the maximally productive use.<o:p></o:p></span></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Vacant_and_improved"></a><span class="mw-headline">Vacant and improved</span><o:p></o:p></span></h2><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">The Test of Highest and Best Use is applied to an improved properties both <i>as improved</i> and <i>as if vacant</i>. Vacant properties are generally only given the <i>as vacant</i> test. The Highest and Best Use as vacant may be the same or different as the Highest and Best use as improved.<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">For example, "House A" in a residentially zoned area may have a highest and best use as vacant and a highest and best use as improved that are both residential. A similar "House B" in a commercially zoned area may have a highest and best use as vacant as a commercial lot and <i>highest and best use as improved</i> as a single family residence.<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">If the value of the commercial lot as vacant in "House B" exceeds the value of house as a residence as improved plus demolition costs, the overall highest and best use of this property would be the <i>as vacant</i> value of the commercial lot. For example, assume that "House B" has a value as a house of $200,000, and a site value as a commercial lot of $250,000 with a cost to demolish the house and prepare the site at $25,000. The Highest and Best Use of the site is to demolish the house and sell the site as a commercial lot. The market value would be $225,000 ($250,000 site value minus $25,000 demolition cost). However if the demolition costs rose to $55,000, the Highest and Best Use would be the existing residential use, because the value as a commercial lot (now $195,000) would not exceed the existing value as a residence.<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">This would be the Highest and Best Use of the property, even though it is contrary to what actually exists. Even if the house is not razed and the site sold as a commercial lot, the Highest and Best Use is the commercial lot use. The market value of the property is driven by this hypothetical conversion, even if it never takes place due to the utility that this potential conversion would bring to a purchaser.<o:p></o:p></span></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="Economic_theory"></a><span class="mw-headline">Economic theory</span><o:p></o:p></span></h2><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;"><span style="font-size:100%;">The economic concepts of <a href="http://en.wikipedia.org/wiki/Utility" title="Utility">utility</a> and <a href="http://en.wikipedia.org/wiki/Substitute_good" title="Substitute good">substitution</a> drive the highest and best use analysis. The highest and best use of a property determines its utility to a potential purchaser. The purchaser of such a property would pay no more than a competing property with the same utility while a seller would accept no less that a seller of a comparable property. That is true to the neighbourhood.<o:p></o:p></span></p><div style="text-align: justify;"> </div><h2 style="font-family: courier new; text-align: justify;"><span style="font-size:100%;"><a name="References"></a><span class="mw-headline">References</span><o:p></o:p></span></h2><div style="text-align: justify;"> </div><ul style="font-family: courier new; text-align: justify;" type="disc"><li class="MsoNormal"><span style="font-size:100%;">The Appraisal of Real Estate, 12th Edition, by the Appraisal Institute<o:p></o:p></span></li></ul><div style="text-align: justify;"> </div><p style="font-family: courier new; text-align: justify;" class="MsoNormal"><span style="font-size:100%;"><o:p> </o:p></span></p>noerhilmanhttp://www.blogger.com/profile/07501293211100270892noreply@blogger.com0