Section 876 IAC 2-8-12 - Real property valuation; appraisalAuthority: IC 25-34.1-2-5
Affected: IC 25-34.1-5
Sec. 12.
(a) The competency and instructional level for subdivisions (1) through (5) is Level 2. The following are basic appraisal concepts: (1) Definition of "appraisal" including the following: (2) Valuation versus evaluation including the following: (A) Valuation, market value estimates.(B) Evaluation as follows: (i) Economic feasibility study.(ii) Land utilization study.(3) Concepts of value including the following: (C) "Value" versus "cost" and "price".(D) Definition of "market value".(4) Forces and factors influencing property value including the following: (A) Social ideas and standards.(C) Government activities.(D) Physical or environmental forces.(5) Basic economic principles of value including the following: (H) Highest and best use.(b) The competency and instructional level for subdivision (1) is Level 3. The competency and instructional level for subdivisions (2) through (3) is Level 2. The competency and instructional level for subdivision (4) is Level 1. The following are concepts of approaches to value (appraisal methods): (1) Market data approach (also called direct sales comparison approach) (Students should be afforded practice in the use of this approach for estimating the value of residential properties.) including the following: (A) Definition and general use; terminology.(B) The following procedures: (i) Selection of recently sold comparable properties ("comparables").(ii) Collection and analysis of sales and property data.(iii) Adjustment of the sale prices of comparables to reflect differences between them and the subject property.(iv) Correlation of the adjusted sale prices of comparables to derive estimate of value for subject property.(2) Cost approach including the following: (A) Definition and general use; terminology.(B) Estimate of land (lot) value (determined by using market data approach).(C) Estimating building costs as follows: (i) Reproduction cost versus replacement cost.(ii) Estimating reproduction or replacement cost using the square foot (comparative) method (simplest and most widely used method by appraisers).(iii) Depreciation as follows: (AA) Definition and basic concepts (such as "effective age" and "economic life").(BB) The following depreciation methods: (aa) Age/life (straight-line) method.(bb) Market abstraction method.(cc) The following breakdown method: (1) Physical deterioration (curable and incurable).(2) Functional obsolescence (curable and incurable).(3) Economic obsolescence (curable and incurable).(D) Formulating the opinion of value (estimated reproduction/replacement cost less (-) estimated depreciation plus (+) estimated value of land equals (=) indication of value).(3) Income approach including the following: (A) Definition and general use.(B) Capitalization of income method as follows: (i) Estimate gross potential income based on "market rent".(ii) Derive net operating income estimate by deducting projected vacancy and collection losses and operating expenses from gross income projection.(iii) Derive capitalization rate by either: (AA) market abstraction (same concept as used with market data approach and GRM method; most commonly used method); or(BB) other methods such as "band of investment method", "build-up method", or "mortgage equity method". (These are beyond the scope of this course. Mention only, do not cover.)
(iv) Derive estimate of property value (value equals net operating income divided by capitalization rate).(C) Gross rent multiplier (GRM) method as follows: (i) Obtain sale price and gross income (rent) data on recently sold similar (comparable) properties. (Also record property and other sales data for comparative purposes.)(ii) Derive GRM for each comparable (sales price divided by gross income equals GRM).(iii) Correlate data to determine appropriate GRM.(iv) Derive estimate of subject property's value (GRM multiplied by gross income of subject equals indicated value of subject).(4) The following reconciliation of the three (3) approaches to value: (A) Assign appropriate "weight" to value indicated by each approach according to the reliability of each approach for the particular subject property.(B) Derive final conclusion (estimate) of value.Indiana Real Estate Commission; 876 IAC 2-8-12; filed Dec 1, 1989, 5:00 p.m.: 13 IR 648; readopted filed Jun 29, 2001, 9:56 a.m.: 24 IR 3824; readopted filed Jul 19, 2007, 12:57 p.m.: 20070808-IR-876070067RFA; readopted filed November 25, 2013, 9:21 a.m.: 20131225-IR-876130283RFA