Thursday February 19, 2026 Class #9

 CHAPTER 5

Download Student Handout for Class

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You can tell beginners that every appraisal answers 7 core questions:

1. Who hired me? → Client

2. Who will use it? → Intended Users

3. Why is it needed? → Intended Use

4. What kind of value? → Type & Definition

5. Value as of when? → Effective Date

6. What am I valuing? → Property Characteristics

7. Any special rules? → Assignment Conditions

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1️⃣ The Client

Definition:
The client is the person or company that hires the appraiser and pays for the appraisal.

Simple Explanation:
Think of the client as the “customer” who asks the appraiser to figure out what a property is worth.

Examples:

• A bank ordering an appraisal for a mortgage

• A buyer hiring an appraiser before purchasing

• An attorney needing a value for court

👉 Only the client can authorize changes to the assignment.

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2️⃣ Intended Users of the Report

Definition:
The intended users are the people the appraiser expects will rely on the appraisal results.

Simple Explanation:
These are the people allowed to use the appraisal to make decisions.

Examples:

• The lender

• The borrower

• A government agency

• An investor group

⚠️ Important teaching point:
Not everyone who reads the report is an intended user.

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3️⃣ Intended Use of the Report

Definition:
The intended use explains why the appraisal is being done.

Simple Explanation:
It answers the question:
👉 “What decision will this appraisal help someone make?”

Common Intended Uses:

• Mortgage lending

• Estate planning

• Property tax appeal

• Divorce settlement

• Investment analysis

📌 The intended use affects:

• Scope of work

• Report format

• Level of analysis

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4️⃣ Type and Definition of Value (with Source)

Definition:
This tells us what kind of value the appraiser is estimating and provides the official definition from a recognized source.

Simple Explanation:
Value is not just one thing — there are different kinds depending on the situation.

Common Types of Value

• Market Value – most common

• Investment Value

• Insurable Value

• Liquidation Value

• Use Value

Example (Market Value Definition Source)

Usually taken from:

• Federal banking regulations

• Fannie Mae

• Freddie Mac

• USPAP recognized sources

Student Example:
Market value = what a typical buyer would likely pay under normal conditions.

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5️⃣ Effective Date of the Opinion of Value

Definition:
The effective date is the specific date the value opinion applies to — not necessarily when the report was written.

Simple Explanation:
Value changes over time, so we must say:
👉 “What was the property worth on THIS date?”

Types of Effective Dates

• Current date (inspection date)

• Retrospective date (past)

• Prospective date (future)

Example:
An estate appraisal might use a value as of the owner’s date of death.

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6️⃣ Relevant Characteristics of the Property

Definition:
These are the physical, legal, and economic features that affect value.

Simple Explanation:
Everything about the property that makes it worth more or less.

Key Characteristics

Physical

• Size, age, condition

• Bedrooms/bathrooms

• Construction quality

Legal

• Zoning

• Easements

• Deed restrictions

Economic

• Income potential

• Lease terms

• Market area

Since you teach valuation, you can tell students:
👉 This is where Highest and Best Use begins.

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7️⃣ Assignment Conditions

(Extraordinary Assumptions & Hypothetical Conditions)

These are special rules or situations that affect how the appraisal is done.

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✔️ Extraordinary Assumption

Definition:
An assumption that is believed to be true but is not fully verified.

Simple Explanation:
The appraiser says:
👉 “I’m assuming this is true — but if it turns out wrong, the value could change.”

Example:

• Assuming no environmental contamination exists

• Assuming square footage from plans is accurate

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✔️ Hypothetical Condition

Definition:
A condition that is known to be false but is used for analysis purposes.

Simple Explanation:
The appraiser pretends something is true to answer a “what if” question.

Example:

• Valuing a property as if renovated

• Valuing land as if rezoned

⚠️ Important teaching note:
Hypothetical conditions must be clearly disclosed.

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You can tell beginners that every appraisal answers 7 core questions:

1. Who hired me? → Client

2. Who will use it? → Intended Users

3. Why is it needed? → Intended Use

4. What kind of value? → Type & Definition

5. Value as of when? → Effective Date

6. What am I valuing? → Property Characteristics

7. Any special rules? → Assignment Conditions