Download PDF Download. Geoforum Available online 1 June Author links open overlay panel Enora Robin. Under a Creative Commons license. Almost every jurisdiction in the country, with the notable exception of Houston, Texas, has some form of land use regulation, which provides a subject system of sorting and qualifying not only the proposed use of land retail, industrial, residential, etc.
The land use application process can delay a project for months or even years. For this reason, the land use permit, while not the final approval for construction purposes, is often the greatest hurdle to achieve project financing. Some items that might delay land use approval are:. By granting a building permit, a jurisdiction is approving a project on a technical level. A jurisdiction, through its engineers, will review building plans to determine whether they meet certain safety standards and conform to current building codes.
The building permit application process is relatively speedy compared to the land use process because is supposed to be based on objective criteria. For this reason, it is less likely to delay fundraising. The building permit is generally the last milestone in the pre-development stage. The middle stage involves constructing the improvements. Since the pre-development tasks have been completed, the project risks at this stage are greatly reduced but certainly not eliminated. Some of the common steps in this stage include:. The project typically is financed at this stage by the sponsor, outside investors, and a short-term construction loan.
Investments and loans made during this stage generally provide lower returns than pre-development investments but higher returns than those made for fully-constructed or stabilized buildings. The certificate of occupancy generally marks the end of the construction phase and allows for the commencement of property operations.
Like the building permit, it is based upon objective criteria regarding construction quality and is a fairly administrative process. While the pre-development and construction risks may be removed by this point, obtaining tenants is still at risk. Some activities during the final stage include:. Depending upon the amount of pre-leasing that was accomplished during construction, this can be the least risky stage. For this reason, permanent loans and equity investments will provide the lowest returns. This snapshot view highlights the risk profile of development projects over time; however, many of the same risks apply to the purchase or refinancing of an existing building, such as sponsor solvency and expertise, economic conditions, and market factors also apply.
This is because the appraiser, who is not an expert home inspector, will be told if there are substantial construction defects or major repairs required.
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This information can cause the appraiser to arrive at a different, probably lower, opinion of value. This information may be particularly helpful if one or both of the parties requesting the appraisal may end up in possession of the property. This is sometimes the case with property in a divorce settlement or a legal judgment. Automated valuation models AVMs are growing in acceptance.
These rely on statistical models such as multiple regression analysis , machine learning algorithms or geographic information system s GIS. Computer-assisted mass appraisal , "CAMA" for short, is a generic term for any software package used by government agencies to help establish real estate appraisals for property tax calculations. A CAMA is a system of appraising property, usually only certain types of real property , that incorporates computer-supported statistical analyses such as multiple regression analysis and adaptive estimation procedure to assist the appraiser in estimating value.
The various U. This will facilitate global real estate appraisal standards, a much-needed adjunct to real estate investment portfolios which cross national boundaries. Some appraisal groups are already international organizations and thus, to some extent, already incorporate some level of global standards.
In Germany , real estate appraisal is known as real estate valuation Immobilienbewertung. 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. Real estate appraisal in Germany is partly codified by law. The federal Baugesetzbuch 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 ff.
Each municipality city or administrative district must form a Gutachterausschuss appraisal committee , consisting of a chairman and honorary members. 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.
The Real Estate Development Process: Understanding the Risks and Milestones | CrowdStreet
The BauGB defines the Verkehrswert or Marktwert market value, both terms with identical meaning as follows: "The market value is determined by the price that can be realized 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"  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. This federal law is supported by the Wertermittlungsverordnung abbr.
WertV, "regulation on the determination of value". German codified valuation approaches other approaches such as DCF or residual approach are also permitted, but not codified are the:. WertV's general regulations are further supported by the Wertermittlungsrichtlinie abbr. WertR, "directive on the determination of value". In most regards Generally Accepted German Valuation Principles is consistent with international practice.
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The investment market weighs the income approach most heavily. However, there are some important differences:.
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 Vereinfachtes Ertragswertverfahren simplified income approach , omitting the land value and the Liegenschaftszins.
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. 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. BDSF  is the main professional organization encompassing the majority of licensed appraisers in Germany.
In recent years, with the move towards a more global outlook in the valuation profession, the RICS has gained a foothold in Germany, somewhat at the expense of the BDSF. With special focus on hypothetical value, in , German banks with real estate financing activities formed the HypZert GmbH , an association for the certification of real estate 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 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. Historically, most valuations in Israel were statutory valuations such as valuations performed for purposes of Betterment Tax , 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.
Since Israel implemented the International Financial Reporting Standards IFRS in , the profession has been engaged in performing valuations for purposes of financial reporting. In the UK , real estate appraisal is known as property valuation and a real estate appraiser is a land valuer or property valuer usually a qualified chartered surveyor who specializes in property valuation.
Appraisal practice in the United States is regulated by state. The federal government regulates appraisers indirectly because if the Appraisal Subcommittee ASC of the Federal Financial Institutions Examination Council FFIEC finds that a particular state's appraiser regulation and certification program is inadequate, then under federal regulations all appraisers in that state would no longer be eligible to conduct appraisals for federally chartered banks.
Banks make widespread use of mortgage loans and mortgage-backed securities , and would be unable to do so without appraisals. But prior to the s, there were no commonly accepted standards either for appraisal quality or for appraiser licensure. In the s, an ad-hoc committee representing various appraisal professional organizations in the United States and Canada met to codify the best practices into what became known as the Uniform Standards of Professional Appraisal Practice USPAP.
The U. Savings and Loan Crisis resulted in increased federal regulation via the Financial Institutions Reform, Recovery and Enforcement Act of , which required federal lending regulators to adopt appraisal standards. Federal oversight of TAF is provided by the Appraisal Subcommittee, made up of representatives of various federal lending regulators.
Property Development Appraisals
During the s, 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. In addition, there are professional appraisal organizations, organized as private non-profit organizations that date to the Great Depression of the s.
These organizations all existed to establish and enforce standards, but their influence waned with increasing government regulation. It was founded in One of the most recognized professional organizations of real estate appraisers in America is the Appraisal Institute AI. Founded along with others in the s, the two organizations merged in the s to form the AI. The Institute has enacted rigorous regulations regarding the use and display of these designations.
The primary motive for this rule is to prevent trademark dilution. These designations require attendance in appraisal technique classes, ethical training, exams, and a review of the candidate's work by designated appraisers. The National Association of Appraisers NAA was formed with a purpose of uniting those engaged in the appraisal profession for the purpose of exerting a beneficial influence upon the profession and to advocate appraiser interests.
The NAA has established an advisory group consisting of leadership at the state organizations and coalitions called the Board of Governors where those states can help guide the NAA in acting in the best interest of all appraisers. The NAA also has a designated membership, MNAA Member of the National Association of Appraisers, who is an individual who holds an appraisal license, certification or similar appraisal credential issued by a governmental agency; and who accepts the membership requirements and objectives of the National Association of Appraisers.
Other leading appraisal organizations include the National Association of Independent Fee Appraisers and the National Association of Master Appraisers , which were also founding sponsor-members of the Appraisal Foundation. In Russia , on par with many other former Soviet Union economies, the profession emerged in the first half of , and represented a clean break with the former practice of industry-specific pricing specialists and with activities of statutory price-setting authorities in the Soviet Union.
Currently, property valuation, as it is called, is a specialism within general-purpose "valuation profession", which functions in a self-regulatory mode overseen by "self-regulated professional organizations" of valuers SROs , i. The principal among those is Russian Society of Appraisers , established in and presently exercising oversight over about half of the valuation profession membership.
The latter categories of valuers are also allowed to value property, though valuation professionals tend to specialize.