CHICAGO (May 29, 2007) – With the publication of the Spring 2007 issue, The Appraisal Journal continues its yearlong salute to its diamond anniversary by providing a review of appraiser ethics and standards. Other featured articles examine several unique appraisal topics including: how seller disclosure affects market value, how sales prices have been affected by deregulation of Federal Housing Administration (FHA) and Veterans Affairs (VA) mortgages, and how certain valuation approaches may lead to overvaluations resulting in payment of excess property taxes.
The spotlighted article in the Spring 2007 issue, "The Evolution of Appraiser Ethics and Standards," was written by Bruce M. Closser, MAI, SRA, chair of The Appraisal Foundation Advisory Council and past chair of the Appraisal Standards Council of the Appraisal Institute. In his article, Closser traces the profession's movement toward a consensus on professional standards, the origins of appraisal ethics and standards in the United States, the impact of economic and regulatory changes on standards, and the creation of the Uniform Standards of Professional Appraisal Practice. Two historic reprints on appraiser ethics and professionalism, including one by Winston S. Churchill, accompany this article.
Another article is "Seller Disclosure and Buyer Knowledge: How They Affect Market Value," by Rudy R. Robinson III, MAI, and Scott R. Lucas. The article notes that while appraisers use sale prices of comparable properties to develop an opinion of market value, if the seller disclosure or buyer knowledge of a negative property condition is not comparable, then it taints the use of these sales for appraisal processes. The authors discuss how the extent of disclosure affects the market and the questions that appraisers should ask market participants to determine their knowledge of negative conditions.
In the article, "Sales Comparison Adjustments for FHA and VA Financing After Deregulation," the authors Paul K. Asabere, PhD, and Forrest E. Huffman, PhD, study home purchases in San Antonio to measure the impact of FHA and VA financing on sale prices. The authors find that similar homes generally sold for 5.8 percent less if the purchasers used FHA financing and 4.2 percent less if VA financing was used. This is an important change from the pre-deregulation market. Congress deregulated interest rates and loan terms in 1980 when it passed the federal "Depository Institutions Deregulation and Monetary Control Act." The authors note that prior to deregulation in 1980, sellers paid the points on FHA and VA mortgages and shifted these costs to buyers in the form of higher prices. Since deregulation, the costs of FHA insurance and VA guarantees have been borne by homebuyers and the authors conclude that buyers consequently make lower-priced purchase offers.
How income-producing property is valued for ad valorem taxes is the topic of "Partitioning Capitalization Rates: Operating Leases in Unitary Valuation," by Thomas W. Hamilton, PhD, and David O. Vang, PhD. Under current practice, if a property includes a leased component, the valuation is higher because the entity has more income since it does not use debt and equity capital to finance purchase of the leased component. The authors argue that this approach results in overvaluation unless there is a similar increase in the capitalization rate and that there must be consistency between the income that is capitalized into value and the income's capitalization rate.
The Appraisal Journal, published quarterly by the Appraisal Institute, serves as a forum for advancing appraisal theories and practices. Containing articles, columns and letters written by experienced appraisers and educators, The Appraisal Journal presents ideas, concepts and analytical techniques to be considered. Each issue offers alternative valuation methods for serious thinkers seeking creative solutions to appraisal problems, appealing to appraisers, educators and other real estate professionals.
For more information about The Appraisal Journal or for review copies, please contact Nancy Bannon at 312-335-4445.
The Appraisal Institute is a global membership association of professional real estate appraisers, with 22,000 members and 92 chapters throughout the world. Organized in 1932,?its?mission?is to support and advance its members as the choice for real estate solutions and uphold professional credentials, standards of professional practice and ethics consistent with the public good. Members of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA and SRA designations.