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Over the years, I’ve actually worked with inexperienced appraisers who’ve asked the question: “why are photographs so important?”  Photographs reflect the condition of the property at the time of the appraisal inspection. Photographs prove that the appraiser was actually at the property despite allegations no inspection ever took place.  Lastly, photos can simply help the appraiser remember the property.  Again, with the ease of digital cameras, the appraiser can provide interior photographs to prove that no water stains were apparent at the time of the inspection and that any pre-existing stains must have been painted over.  Photos would prove that the cracking, which is now evident around the doors and windows, must have been caulked and repainted, which served to conceal any problems from the appraiser.  A photo of the garage filled to the roof with boxes demonstrates how the appraiser could not have seen the significant cracking now apparent in the garage floor.  

Some exterior photos would prove that at the time of the inspection, dense shrubbery surrounded the home, thereby making it impossible for the appraiser to have access to the foundation.  Without photographs, all you have to defend yourself with is your word.  With photographs, you have solid evidence, which cannot be refuted.  A photo is truly worth a thousand words, and with today’s technology it only takes a few minutes to take photos throughout the property.  The moral of this story is that a successful real estate appraiser always makes it a high priority to take quality photographs of a property. 

Let me share with you another story.  I knew of an appraiser who appraised a single family residence that had been purchased in a foreclosure sale by an investor who specialized in rehabilitating distressed properties.  Purchased for under $20,000, the subject property was in terrible shape, showing obvious signs of deferred maintenance. The investor installed new carpet, repainted the entire interior, and put new appliances and linoleum in the kitchen and the 2 baths.  A new toilet replaced one that was cracked and stained.  The property was under contract for $96,000 when it was inspected by the appraiser.  He noted the prior sale, detailed all the rehab work done by the investor/seller and also took photos of the freshly painted walls, new carpets, kitchen, and baths.  Little did he know how valuable those photos would eventually be. The new buyer, an investor who unfortunately bought too many properties to manage them well, rented out the subject property.  When the buyer defaulted on the loan, the lender took over. (more…)

A year ago I interviewed Mark Thomas of Economist’s View blog about the Great Moderation.  (You can listen to it here by scrolling down to the bottom.)  For you non-economists, the Great Moderation is the period of calmer economic activity that we’ve experienced since 1983.  Quarter-to-quarter changes in GDP are closer to average, the frequency of recessions has gone down, and the severity of recessions has become less.  It’s pretty cool.

With the recent turmoil in the economy, I was curious if he had changed his views about whether the Great Moderation was continuing, and would continue.  You can listen here.For a graphical view of the Great Moderation, I calculated the standard deviation of quarter-to-quarter changes in real GDP over rolling 5-year periods.  It’s stunning how much we’ve calmed down.

Bill Conerly
Creator of Businomics Blog
Ashworth University Contributing Blogger

*Bill Conerly is one of the most respected and trusted Business bloggers on the Web.  Mr. Conerly’s in-depth analyses are based on “real world” applicability, a communications’ style he has honed through years of professional experience. We’re honored to have Bill Conerly as a member of the Ashworth University Blog contributors network. To learn more about the life and work of Bill Conerly, visit his acclaimed Businomics Blog.

              Thanks to Mzelle Biscotte for permission to use this Photo. 

Any organization in which you find employment will have a variety of managers who have a variety of responsibilities.  A typical business will have sales, operations, financial, and other types of managers, each with a different viewpoint on what it takes for the company to succeed.  In smaller enterprises a manager may wear several of these hats.  In a large corporation managers tend to be more specialized, either as to their duties or their geographic area or product line. 

These managers speak different “languages” and sometimes the result can be a virtual Tower of Babel.  For an example of this, you might try sometime asking an accountant, a plant supervisor, and an engineer what it costs the company to make a particular product.  Having completed this course you should now be able to communicate effectively with a financial manager, and you should also know how to read and interpret financial statements, determining what they’re telling you and what they aren’t.  Armed with these skills you now have the ability to ask the right questions to make better decisions both as a manager and as an investor.  And you can appreciate why the accountant, the plant supervisor, and the engineer would look at “cost” differently.  You needn’t expect them to all agree, so long as you recognize how you need to view the cost of a product. 

Whatever profession you choose, if you’re not already tied to one, you’ll need to master its language and those of professions tied to individual departments, as well.  These could include production, purchasing, materials management, human resources, sales and marketing, and even corporate legal disciplines.  This is the purpose of a general business education such as the one you are pursuing at Ashworth University. (more…)

                   Thanks to J. Parks for permission to use this Photo. 

The most important phase of property valuation is also the most controversial and least known.  This procedure is called the rate of capitalization.  It is used to determine a market rate of capitalization.  Through this rate, estimated future net income can be converted into a sum of present value.  The rate of capitalization acts as a lever which pushes income into a height of value.  Here is how the lever works.  The lower the rate of capitalization is, the higher the value per dollar of income is.  Thus, the value of a particular property will also be higher.  The opposite is true if the rate is higher.  The higher the rate of capitalization is, the lower the value per dollar of income is.  Thus, the value of a particular property will also be lower. 

If speculation or motives other than investment buying are prime reasons for purchase, the sale price of the property in relation to its income is of little aid to an appraiser in search of applicable market rates of capitalization.  In fact, such sales may prove highly misleading as indicators of prevailing yields on real estate investments.  You can see why I stated earlier that the rate of capitalization procedure is very controversial.  This procedure has the potential to yield misleading results. 

Most appraisers would find themselves at a loss if the application of the income approach and the selection of a rate of capitalization had to be sustained solely by analysis of investment sales in their community.  You may wonder why this is true.  Well, real estate transactions are traditionally private in nature and factual income data is often difficult to obtain.  Thus, it is very difficult to select sales which could be usefully employed for statistical income analysis.

Although real estate as a commodity is local in character, the financing and purchase of real estate, both for investment and speculative purposes, have the distinct characteristics of a national market.  The mobility of credit and the flexibility of investment buying with income reserves and surpluses have channeled funds into community areas where the investment returns in relation to capital markets are the highest.  The existence of a national real estate investment market makes national income and rates of return statistics, compiled by investment firms and real estate analysts, available for real properties.  These national indices of investment yields, when adjusted for community and regional risks for given classes of real properties, can be used as effective guides in judging the reasonability of rates of capitalization secured from market analyses of comparable sales.  

Bob Chaapel
Real Estate Appraisal Instructor
Ashworth University

 
                   Thanks to PQZ for permission to use this Photo.

With regard to marketing your residential property, it is imperative to remember that first impressions can be made only once.  That is why curb appeal is so important.  Renters want a clean, attractive, safe, and comfortable environment.  When you provide that environment, potential renters will leave with a positive image of your complex.  

You have 30 seconds to make a positive impression on the prospective renter.  Be polite, positive, and interested in their specific needs when you’re touring prospective tenants through the property.  “Read” the customer to see what he or she is interested in when renting.  If you can find out what interests renters, you can gear your presentation to their needs. 

Marketing is essential for the success of the property.  Most residential properties lease units for a term of one year.  Even though many residential renters continue to rent the same unit, there is still the possibility that each unit could become vacant if the existing renter does not renew.  With that in mind, you need to be prepared to fill a vacancy at almost any time.

When preparing your budget, look over the past year’s expenses to get an understanding of what the needs of the property are.  However, never simply take last year’s expenses and add a percentage to predict the next year’s expenses.  Properties age differently, and you must perform periodic inspections to determine what fixtures and components are starting to wear out and when they will need to be replaced.Some properties host excellent tenant social functions that the renters love.  Give them entertainment and a way to mingle with each other, and you can create a very solid community of people who will stay year to year even when the rental rates increase.  Remember, some groups of people like apartments for their social life, and capitalizing on that could reap your owner excellent financial returns.

Chuck Perme
Property Management Instructor
Ashworth University