Common Myths About Selling Your Home for Cash Debunked

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Real estate is property consisting of land and the buildings on it, along with its natural resources such as growing crops (e.g. timber), minerals or water, and wild animals; immovable property of this nature; an interest vested in this (also) an item of real property, (more generally) buildings or housing in general.^[1][2] In terms of law, real relates to land property and is different from personal property, while estate means the "interest" a person has in that land property.^[3]

Real estate is different from personal property, which is not permanently attached to the land (or comes with the land), such as vehicles, boats, jewelry, furniture, tools, and the rolling stock of a farm and farm animals.

In the United States, the transfer, owning, or acquisition of real estate can be through business corporations, individuals, nonprofit corporations, fiduciaries, or any legal entity as seen within the law of each U.S. state.^[3]

The natural right of a person to own property as a concept can be seen as having roots in Roman law as well as Greek philosophy.^[4] The profession of appraisal can be seen as beginning in England during the 1500s, as agricultural needs required land clearing and land preparation. Textbooks on the subject of surveying began to be written and the term "surveying" was used in England, while the term "appraising" was more used in North America.^[5] Natural law which can be seen as "universal law" was discussed among writers of the 15th and 16th century as it pertained to "property theory" and the inter-state relations dealing with foreign investments and the protection of citizens private property abroad. Natural law can be seen as having an influence in Emerich de Vattel's 1758 treatise The Law of Nations which conceptualized the idea of private property.^[6]

One of the largest initial real estate deals in history known as the "Louisiana Purchase" happened in 1803 when the Louisiana Purchase Treaty was signed. This treaty paved the way for western expansion and made the U.S. the owners of the "Louisiana Territory" as the land was bought from France for fifteen million dollars, making each acre roughly 4 cents.^[7] The oldest real estate brokerage firm was established in 1855 in Chicago, Illinois, and was initially known as "L. D. Olmsted & Co." but is now known as "Baird & Warner".^[8] In 1908, the National Association of Realtors was founded in Chicago and in 1916, the name was changed to the National Association of Real Estate Boards and this was also when the term "realtor" was coined to identify real estate professionals.^[9]

The stock market crash of 1929 and the Great Depression in the U.S. caused a major drop in real estate worth and prices and ultimately resulted in depreciation of 50% for the four years after 1929.^[10] Housing financing in the U.S. was greatly affected by the Banking Act of 1933 and the National Housing Act in 1934 because it allowed for mortgage insurance for home buyers and this system was implemented by the Federal Deposit Insurance as well as the Federal Housing Administration.^[11] In 1938, an amendment was made to the National Housing Act and Fannie Mae, a government agency, was established to serve as a secondary market for mortgages and to give lenders more money in order for new homes to be funded.^[12]

Title VIII of the Civil Rights Act in the U.S., which is also known as the Fair Housing Act, was put into place in 1968 and dealt with the incorporation of African Americans into neighborhoods as the issues of discrimination were analyzed with the renting, buying, and financing of homes.^[13] Internet real estate as a concept began with the first appearance of real estate platforms on the World Wide Web (www) and occurred in 1999.

Residential real estate may contain either a single family or multifamily structure that is available for occupation or for non-business purposes.^[14]

Residences can be classified by and how they are connected to neighbouring residences and land. Different types of housing tenure can be used for the same physical type. For example, connected residences might be owned by a single entity and leased out, or owned separately with an agreement covering the relationship between units and common areas and concerns.^[15]

According to the Congressional Research Service, in 2021, 65% of homes in the U.S. are owned by the occupier.^[16]

Major categories

• Attached / multi-unit dwellings
  • Apartment (American English) or Flat (British English) – An individual unit in a multi-unit building. The boundaries of the apartment are generally defined by a perimeter of locked or lockable doors. Often seen in multi-story apartment buildings.
  • Multi-family house – Often seen in multi-story detached buildings, where each floor is a separate apartment or unit.
  • Terraced house (a.k.a. townhouse or rowhouse) – A number of single or multi-unit buildings in a continuous row with shared walls and no intervening space.
  • Condominium (American English) – A building or complex, similar to apartments, owned by individuals. Common grounds and common areas within the complex are owned and shared jointly. In North America, there are townhouse or rowhouse style condominiums as well. The British equivalent is a block of flats.
  • Housing cooperative (a.k.a. co-op) – A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit. Majority of housing in Indian metro cities are of these types.
  • Tenement – A type of building shared by multiple dwellings, typically with flats or apartments on each floor and with shared entrance stairway access found in Britain.
• Semi-detached dwellings
  • Duplex – Two units with one shared wall.
• Detached dwellings
  • Bungalows
  • Split-level home
  • Mansions
  • Villas
  • Detached house or single-family detached house
  • Cottages
• Portable dwellings
  • Mobile homes, tiny homes, or residential caravans – A full-time residence that can be (although might not in practice be) movable on wheels.
  • Houseboats – A floating home
  • Tents – Usually temporary, with roof and walls consisting only of fabric-like material.

Other categories

• Chawls
• Havelis
• Igloos
• Huts

The size of havelis and chawls is measured in Gaz (square yards), Quila, Marla, Beegha, and acre.

See List of house types for a complete listing of housing types and layouts, real estate trends for shifts in the market, and house or home for more general information.

Real estate can be valued or devalued based on the amount of environmental degradation that has occurred. Environmental degradation can cause extreme health and safety risks. There is a growing demand for the use of site assessments (ESAs) when valuing a property for both private and commercial real estate.^[17]

Environmental surveying is made possible by environmental surveyors who examine the environmental factors present within the development of real estate as well as the impacts that development and real estate has on the environment.

Green development is a concept that has grown since the 1970s with the environmental movement and the World Commission on Environment and Development. Green development examines social and environmental impacts with real estate and building. There are 3 areas of focus, being the environmental responsiveness, resource efficiency, and the sensitivity of cultural and societal aspects. Examples of Green development are green infrastructure, LEED, conservation development, and sustainability developments.

Real estate in itself has been measured as a contributing factor to the rise in green house gases. According to the International Energy Agency, real estate in 2019 was responsible for 39 percent of total emissions worldwide and 11 percent of those emissions were due to the manufacturing of materials used in buildings.^[18]

This article may need to be rewritten to comply with Wikipedia's quality standards. You can help. The talk page may contain suggestions. (August 2024)

Real estate appraisal, property valuation or land valuation is the process of assessing the value of real property (usually market value). Real estate transactions often require appraisals because every property has unique characteristics. The location also plays a key role in valuation. Appraisal reports form the basis for mortgage loans, settling estates and divorces, taxation, and so on. Sometimes an appraisal report is used to establish a sale price for a property.

There are several types and definitions of value sought by a real estate appraisal. Some of the most common are:

• Market value – the price at which an asset would trade in a competitive Walrasian auction setting. Market value is usually interchangeable with open market value or fair value. International Valuation Standards (IVS) define:

Market value – the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.^[1]

• Value-in-use, or use value^[2] – the net present value (NPV)^[3] of a cash flow that an asset generates for a specific owner under a specific use. Value-in-use is the value to one particular user, and may be above or below the market value of a property.
• Investment value – the value to one particular investor, and may or may not be higher than the market value of a property. Differences between the investment value of an asset and its market value motivate buyers or sellers to enter the marketplace. International Valuation Standards (IVS) define:

Investment value – the value of an asset to the owner or a prospective owner for individual investment or operational objectives.^[1]

• Ad valorem tax value – the value used for taxation purposes, determined by the collection of data through the mass appraisal process. The mass appraisal process applies the data collected through various sources to real property to determine taxable value.^[4]
• Insurable value – the value of real property covered by an insurance policy. Generally, it does not include the site value.
• Liquidation value – may be analyzed as either a forced liquidation or an orderly liquidation and is a commonly sought standard of value in bankruptcy proceedings. It assumes a seller who is compelled to sell after an exposure period which is less than the market-normal time-frame.

There can be differences between what the property is worth (market value) and what it cost to buy it (price). A price paid might not represent that property's market value. Sometimes, special considerations may have been present, such as a special relationship between the buyer and the seller where one party had control or significant influence over the other party. In other cases, the transaction may have been just one of several properties sold or traded between two parties. In such cases, the price paid for any particular piece is not its market "value" (with the idea usually being, though, that all the pieces and prices add up to the market value of all the parts) but rather it's market "price".

At other times, a buyer may willingly pay a premium price, above the generally accepted market value, if his subjective valuation of the property (its investment value for him) was higher than the market value. One specific example of this is an owner of a neighboring property who, by combining his property with the subject property (assemblage), could obtain economies-of-scale and added value (plottage value). Similar situations sometimes happen in corporate finance. For example, this can occur when a merger or acquisition happens at a price which is higher than the value represented by the price of the underlying stock. The usual explanation for these types of mergers and acquisitions is that "the sum is greater than its parts", since full ownership of a company provides full control of it. This is something that purchasers will sometimes pay a high price for. This situation can happen in real estate purchases too.

But the most common reason for value differing from price is that either the buyer or the seller is uninformed as to what a property's market value is but nevertheless agrees on a contract at a certain price which is either too expensive or too cheap. This is unfortunate for one of the two parties. It is the obligation of a real property appraiser to estimate the true market value of a property and not its market price.

Frequently, properties are assessed at a value below their market values; this is known as fractional assessment.^[5] Fractional assessment can result in properties that are assessed at 10% or less of their given market values.^[6]

In the United States, appraisals are for a certain type of value (e.g., foreclosure value, fair market value, distressed sale value, investment value). The most commonly used definition of value is market value. While Uniform Standards of Professional Appraisal Practice (USPAP) does not define Market Value, it provides general guidance for how Market Value should be defined:

A type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser as applicable in an appraisal.

Thus, the definition of value used in an appraisal or Current Market Analysis (CMA) analysis and report is a set of assumptions about the market in which the subject property may transact. It affects the choice of comparable data for use in the analysis. It can also affect the method used to value the property. For example, tree value can contribute up to 27% of property value.^[7][8]

There are three traditional groups of methodologies for determining value. These are usually referred to as the "three approaches to value" which are generally independent of each other:

• The sales comparison approach (comparing a property's characteristics with those of comparable properties that have recently sold in similar transactions).
• The cost approach (the buyer will not pay more for a property than it would cost to build an equivalent).
• The income approach (similar to the methods used for financial valuation, securities analysis or bond pricing – where the implied property value is a function of the property's pro forma cash flow, or NOI in the context of real estate).

However, the recent trend of the business tends to be toward the use of a scientific methodology of appraisal which relies on the foundation of quantitative-data,^[9] risk, and geographical based approaches.^[10][11] Pagourtzi et al. have provided a review on the methods used in the industry by comparison between conventional approaches and advanced ones.^[12]

As mentioned before, an appraiser can generally choose from three approaches to determine value. One or two of these approaches will usually be most applicable, with the other approach or approaches usually being less useful. The appraiser has to think about the "scope of work", the type of value, the property itself, and the quality and quantity of data available for each approach. No overarching statement can be made that one approach or another is always better than one of the other approaches.

The appraiser has to think about the way that most buyers usually buy a given type of property. What appraisal method do most buyers use for the type of property being valued? This generally guides the appraiser's thinking on the best valuation method, in conjunction with the available data. For instance, appraisals of properties that are typically purchased by investors (e.g., skyscrapers, office buildings) may give greater weight to the Income Approach. Buyers interested in purchasing single family residential property would rather compare price, in this case, the Sales Comparison Approach (market analysis approach) would be more applicable. The third and final approach to value is the Cost Approach to value. The Cost Approach to value is most useful in determining insurable value, and cost to construct a new structure or building.

For example, single apartment buildings of a given quality tend to sell at a particular price per apartment.^[13] In many of those cases, the sales comparison approach may be more applicable. On the other hand, a multiple-building apartment complex would usually be valued by the income approach, as that would follow how most buyers would value it. As another example, single-family houses are most commonly valued with the greatest weighting to the sales comparison approach. However, if a single-family dwelling is in a neighborhood where all or most of the dwellings are rental units, then some variant of the income approach may be more useful. So the choice of valuation method can change depending upon the circumstances, even if the property being valued does not change much.

The sales comparison approach is based primarily on the principle of substitution. This approach assumes a prudent (or rational) individual will pay no more for a property than it would cost to purchase a comparable substitute property. The approach recognizes that a typical buyer will compare asking prices and seek to purchase the property that meets his or her wants and needs for the lowest cost. In developing the sales comparison approach, the appraiser attempts to interpret and measure the actions of parties involved in the marketplace, including buyers, sellers, and investors.

Data is collected on recent sales of properties similar to the subject being valued, called "comparables". Only SOLD properties may be used in an appraisal and determination of a property's value, as they represent amounts actually paid or agreed upon for properties. Sources of comparable data include real estate publications, public records, buyers, sellers, real estate brokers and/or agents, appraisers, and so on. Important details of each comparable sale are described in the appraisal report. Since comparable sales are not identical to the subject property, adjustments may be made for date of sale, location, style, amenities, square footage, site size, etc. The main idea is to simulate the price that would have been paid if each comparable sale were identical to the subject property. If the comparable is superior to the subject in a factor or aspect, then a downward adjustment is needed for that factor.^{[clarification needed]} Likewise, if the comparable is inferior to the subject in an aspect, then an upward adjustment for that aspect is needed.^{[clarification needed]} The adjustment is somewhat subjective and relies on the appraiser's training and experience. From the analysis of the group of adjusted sales prices of the comparable sales, the appraiser selects an indicator of value that is representative of the subject property. It is possible for various appraisers to choose a different indicator of value which ultimately will provide different property value.

1. Research the market to obtain information pertaining to sales, and pending sales that are similar to the subject property
2. Investigate the market data to determine whether they are factually correct and accurate
3. Determine relevant units of comparison (e.g., sales price per square foot), and develop a comparative analysis for each
4. Compare the subject and comparable sales according to the elements of comparison and adjust as appropriate
5. Reconcile the multiple value indications that result from the adjustment (upward or downward) of the comparable sales into a single value indication

The cost approach was once called the summation approach. The theory is that the value of a property can be estimated by summing the land value and the depreciated value of any improvements. The value of the improvements is often referred to by the abbreviation RCNLD (for "reproduction/replacement cost new less depreciation"). Reproduction refers to reproducing an exact replica; replacement cost refers to the cost of building a house or other improvement which has the same utility, but using modern design, workmanship and materials. In practice, appraisers almost always use replacement cost and then deduct a factor for any functional dis-utility associated with the age of the subject property. An exception to the general rule of using the replacement cost is for some insurance value appraisals. In those cases, reproduction of the exact asset after a destructive event like a fire is the goal.

In most instances when the cost approach is involved, the overall methodology is a hybrid of the cost and sales comparison approaches (representing both the suppliers' costs and the prices that customers are seeking). For example, the replacement cost to construct a building can be determined by adding the labor, material, and other costs. On the other hand, land values and depreciation must be derived from an analysis of comparable sales data.

The cost approach is considered most reliable when used on newer structures, but the method tends to become less reliable for older properties. The cost approach is often the only reliable approach when dealing with special use properties (e.g., public assembly, marinas). However, it is important to consider if there is actually a market for the use and all forms of obsolescence. Some special use properties lack an active market such that the cost approach may not be reliable either and may be more indicative of a use value or such. In some cases, it may be appropriate to consider alternative uses.

The cost approach requires adjustments for obsolescence, stemming from three sources.

• Physical (depreciation) - Reduction based on the wearing-out of the physical components.
• Functional - Loss in value for some functional or design aspect of the property.
• External - Loss in value for something outside of the property.

Physical depreciation is most familiar. As a structure ages, there is an effect on value. For example, buyers may reduce prices because they expect to make expensive replacements soon. Or in other cases, buyers expect higher utility expenses because they figure the property has older and worn insulation.

Functional obsolescence relates to the design of the property. It could be something that is inadequate about a property (say a house that lacks a swimming pool in a hot climate like Arizona) or something that is superadequate (say a 2-bedroom house that has 9 bathrooms). In either case, there is a deduction to the value compared to the costs of the structures that are there. For example, the 9 bathrooms all cost the same to construct but they add less and less. The appraisal should evaluate whether it is feasible to cure (fix) the item - that is, consider if the increase in value by fixing it exceeds the cost of the fix.

External obsolescence is something outside of the property. It could be changes in market conditions, or an undesirable neighboring property. External obsolescence cannot be fixed.

The income capitalization Approach (often referred to simply as the "income approach") is used to value commercial and investment properties. Because it is intended to directly reflect or model the expectations and behaviors of typical market participants, this approach is generally considered the most applicable valuation technique for income-producing properties, where sufficient market data exists.

In a commercial income-producing property this approach capitalizes an income stream into a value indication. This can be done using revenue multipliers or capitalization rates applied to a Net Operating Income (NOI). Usually, an NOI has been stabilized so as not to place too much weight on a very recent event. An example of this is an unleased building which, technically, has no NOI. A stabilized NOI would assume that the building is leased at a normal rate, and to usual occupancy levels. The Net Operating Income (NOI) is gross potential income (GPI), less vacancy and collection loss (= Effective Gross Income) less operating expenses (but excluding debt service, income taxes, and/or depreciation charges applied by accountants).

Alternatively, multiple years of net operating income can be valued by a discounted cash flow analysis (DCF) model. The DCF model is widely used to value larger and more expensive income-producing properties, such as large office towers or major shopping centres. This technique applies market-supported yields (or discount rates) to projected future cash flows (such as annual income figures and typically a lump reversion from the eventual sale of the property) to arrive at a present value indication. In Canada, reversion values typically range from 16x-21x the NOI of year of sale.

When homes are purchased for personal use the buyer can validate the asking price by using the income approach in the opposite direction. An expected rate of return can be estimated by comparing net expected costs to the asking price. This return can be compared to the home owner's other investing opportunities.^[14]

In the United Kingdom, valuation methodology has traditionally been classified into five methods:^[15]

1. Comparative method. Used for most types of property where there is good evidence of previous sales. This is analogous to the sales comparison approach outlined above.

2. Investment method, also known as hardcore. Used for most commercial (and residential) property that is producing future cash flows through the letting of the property. This method compares the estimated rental value (ERV), or "top slice" to the current ("passing") income, or "bottom slice", to give an indication of whether the future value of the property should rise or fall based on income. If a property's income is higher than the ERV this is sometimes known as "froth", which may be confused with the US use of "froth" describing the period before a real estate bubble.

The cash flows can be compared to the market-determined equivalent yield, and the property value can be determined by means of a simple model. Note that this method is really a comparison method, since the main variables are determined in the market. In standard U.S. practice, however, the closely related capitalizing of NOI is confounded with the DCF method under the general classification of the income capitalization approach (see above).

3. Residual method. Used for properties ripe for development or redevelopment or for bare land only. The site or unimproved property value is based on the improved or developed value less costs of construction, professional fees, development finance costs and a developer's profit or return on risk. ^{[clarification needed]}

4. Profit method. Used for trading properties where evidence of rates is slight, such as hotels, restaurants and old-age homes. A three-year average of operating income (derived from the profit and loss or income statement) is capitalized using an appropriate yield. Note that since the variables used are inherent to the property and are not market-derived, therefore unless appropriate adjustments are made, the resulting value will be value-in-use or investment value, not market value.

5. Cost method. Used for land and buildings of special character for which profit figures cannot be obtained or land and buildings for which there is no market because of their public service or heritage characteristics. Both the residual method and the cost method would be grouped in the United States under the cost approach (see above).

Under the current RICS Valuation Standards, the following bases of value are recognized:

• Market value (see PS 3.2);
• Market rent (see PS 3.3);
• Worth (investment value) (see PS 3.4); and
• Fair value (see PS 3.5)

The common public experience of chartered surveyors is in the process of obtaining a mortgage loan.^[16] A mortgage valuation will be required by any mortgage lender as a condition of obtaining a mortgage loan. The homebuyer may take the option to instruct the same surveyor to carry out a "RICS HomeBuyer Report" or a "RICS Building Survey" (sometimes called a "Structural Survey"^[17]), usually at additional cost.^[16] When the surveyor is instructed in this combined role, the mortgage valuation is still produced for the lender, and the HomeBuyer Report or Building Survey is additionally prepared for the borrower. This arrangement can avoid the potential conflict of interest where the surveyor has as client both the lender and the borrower in the transaction. Because of the ethics and professional liability aspect, borrowers should note that the lender's survey is produced solely for the lender and the surveyor will not be liable for loss or omission to the borrower. Since reform of the RICS Red Book of valuation practice in recent years, the definition of a mortgage valuation has been deleted. It is now a market valuation which is the same definition given to the valuation in the RICS HomeBuyer Report.

The Council of Mortgage Lenders recommends that buyers should not rely only on the mortgage valuation, but obtain a fuller survey for their own purposes.^{[citation needed]} However, a fuller survey is rarely a condition of the loan.

The borrower may prefer to select an independent surveyor to undertake the HomeBuyer Report or Building Survey.

Mortgage valuation report

A mortgage valuation is for the benefit of the lender. Its purpose is merely to confirm the property is worth the price paid, in order to protect the lender's interests.^[18] Invariably there is a disclaimer on the report that confirms that the surveyor has no responsibility to the borrower. This is a legally valid exclusion.

RICS Home Surveys

Under the reforms undertaken by RICS in the early 21st century to better regulate the provision of professional products to the general public, a sector that is usually unable to fully appreciate the consequences of inadequate specification of the required items to be surveyed and how they are reported, RICS produced a new range of consumer products with RICS branding. Three consumer products are now available - 1. RICS Condition Report 2. RICS HomeBuyer Report 3. RICS Building Survey These products have a consistent appearance over the range, with common typefaces and general format. The distinctions come in the detail that is subsequently provided. These are discussed below.

RICS Condition Report

This is short report that looks briefly at the property to report on the visual condition of nine external elements of construction, nine internal elements of construction, seven services supplied to the building, and three key components of the grounds in which the property is sited. The reports rates conditions from 1 - good, 2, - needing attention in the near future, 3 - needing attention now using a traffic light system to draw attention to things that matter.

In practice this report is of little value to the buyer unless the surveyor attends at the same time as the buyer is carrying out a viewing and wants an early indication of general condition, making the most of the surveyor's expert knowledge about how buildings can fail that are not obvious to the average buyer. Some surveyors agree to carry out these surveys as a precursor to then extending the service with a more detailed report in either of the other two types in the RICS Home Surveys suite.^[19] Usually, the fee for the first report is discounted in the fee for the detailed follow up report, since when the surveyor returns to the property, there is already an understanding of what problems are in the property.

RICS HomeBuyer Report

This document format has been revised in 2010 to include an easy to assimilate format for the reader. The problem with the earlier format often reported to RICS by clients in receipt of the previous 'Homebuyer's Survey and Valuation' was that the structure did not easily distinguish the faults from the main description. A traffic light system was introduced and surveyors have to rate each element of the inspection according to priority. In this way, serious impediments are identified easily, and less critical defects commented upon to give the reader advice on what will need attention in the near future. It does not comment on the maintenance requirements for items found to be in satisfactory condition, only confirming that there is no cause for concern at this time. This format is suitable for a wide range of properties, but is best suited to traditionally built houses that are not subject to very serious distress or previous major alterations or extensions. This report is much longer than the condition report and looks in more detail at the property to report on the visual condition and maintenance needs of nine external elements of construction, nine internal elements of construction, seven services supplied to the building, and three key components of the grounds in which the property is sited. The reports rates conditions from 1 - good, 2 - needing attention in the near future, 3 - needing attention now using a traffic light system to draw attention to things that matter. The report also includes commentary to advise the solicitor on issues that need addressing in the conveyance, and any risks that affect the building, grounds and people of a more general nature. There is also a market valuation of the property and an assessment of rebuilding costs for insurance purposes.

Not all chartered surveyors are permitted to undertake providing the RICS HomeBuyer Report as it contains a market valuation. Under rules of the Royal Institution of Chartered Surveyors, any surveyor undertaking these surveys must also be an RICS Registered Valuer and carry professional indemnity insurance for this task. This is an attempt by RICS to provide consumer confidence after the older valuation reports came into disrepute.

RICS Building Survey

There are a number of variations to a residential building survey which offers the home purchaser a choice of products. The two main variants are the RICS Guidance note version stemming from the earlier RICS guidance note 2004 (more recently updated by the "Surveys of residential property RICS guidance note 3rd edition" which was introduced in December 2013). The primary difference between guidance note and the practice note for the consumer is the format of the reports. A bespoke style or a framework (traffic light signal) style. For surveyors guidance is "best practice" and practice note is "mandatory".

The guidance note version can be provided in an agreed word document style format with an appendix for photographs etc. There is also a choice (at extra commissioning cost) to add a market valuation and other services such as costing for repairs and project management / further investigation services by agreement as cited at the end of this description. In effect, is a fully bespoke report.

The alternative is the practice note version (introduced to the market in November 2012). It is a similar traffic light signal format as the other RICS survey products such as the RICS condition report and the RICS homebuyer reports.

Both report formats (guidance note and practice note versions) are appropriate for virtually all properties, including but not limited to listed buildings, thatched cottages, timber frame homes and so on,.

The building survey is the most detailed survey available ^[20] from most firms of Chartered Surveyors.^[18] Thorough though it is, it may still lead to recommendations for further investigation from other specialists; see below. However, A competent surveyor will always try to investigate causes of damp and building defects before recommending for further investigation. The building survey report is much longer than the condition report but may not be much longer than the homebuyer report as its content depends on the condition observed in each individual case. The practice note version building survey looks in more detail at the property to report on the visual condition and maintenance needs of nine external elements of construction, with scope for sub-division into individual features, with the nine internal elements of construction and the seven services supplied to the building examined in a similar manner. Also the three key components of the grounds in which the property is sited can be subdivided as necessary.

The practice note version of the report also rates conditions from 1 - good, 2 - needing attention in the near future, 3 - needing attention now using a traffic light system to draw attention to things that matter. In this format, if there is a defect, not only will it be identified but its causes analyzed and methods of repair and elimination of the cause discussed in some detail. The report also includes commentary to advise the solicitor on issues that need addressing in the conveyance, and any risks that affect the building, grounds and people of a more general nature. There is also discussion on the means of escape in case of fire, which in older houses in particular can be compromised by poor design and alterations. There is no market valuation or an assessment of rebuilding costs for insurance purposes in the document. These can be added, along with cost estimates for the repairs by a separate agreement as discussed in the helpful RICS explanatory notes to clients.

Collectively, a key feature of RICS building surveys are that they provide an opportunity for clients and surveyors to strike up a detailed dialogue about the property they are intending to purchase. Purchasers find a building survey useful in allowing for further negotiations on price or for providing a clients briefing document for extensions or repairs. The building survey is a very interactive process.

Energy performance certificate

Chartered surveyors can also provide an energy performance certificate.

Limits

Chartered Surveyors are not necessarily specialists in other fields, and may recommend further investigations by an electrician, a gas engineer, a structural engineer or expert of another kind, depending on what they find during their inspection. They may also recommend work by the buyer's solicitor to confirm matters which might affect their valuation, such as (with leasehold properties), the unexpired term of the lease, who is responsible for the boundaries, and so forth.

The Chartered Surveyor's inspection is typically non-intrusive. They do not have the authority to lift floorboards, drill holes, or perform excavations at a property which the prospective buyer does not, at this stage, own, which means that certain defects or problems may not be apparent from their inspection.^[21]

Their fees are a component of the cost of moving house in the United Kingdom.

Besides the mandatory educational grade, which can vary from Finance to Construction Technology, most, but not all, countries require appraisers to have the license for the practice. Usually, the real estate appraiser has the opportunity to reach 3 levels of certification: Appraisal Trainee, Licensed Appraiser and Certified Appraiser. The second and third levels of license require no less than 2000 experience hours in 12 months and 2500 experience hours in no less than 24 months respectively.^[22][23] Appraisers are often known as "property valuers" or "land valuers"; in British English they are "valuation surveyors". If the appraiser's opinion is based on market value, then it must also be based on the highest and best use of the real property. In the United States, mortgage valuations of improved residential properties are generally reported on a standardized form like the Uniform Residential Appraisal Report.^[24] Appraisals of more commercial properties (e.g., income-producing, raw land) are often reported in narrative format and completed by a Certified General Appraiser.

While the Uniform Standards of Professional Appraisal Practice (USPAP) has always required appraisers to identify the scope of work needed to produce credible results, it became clear in recent years^[when?] that appraisers did not fully understand the process for developing this adequately. In formulating the scope of work for a credible appraisal, the concept of a limited versus complete appraisal and the use of the Departure Rule caused confusion to clients, appraisers, and appraisal reviewers. To deal with this, USPAP was updated in 2006 with what came to be known as the Scope of Work Project. Following this, USPAP eliminated both the Departure Rule and the concept of a limited appraisal, and a new Scope of Work rule was created. In this, appraisers were to identify six key parts of the appraisal problem at the beginning of each assignment:

• Client and other intended users
• Intended use of the appraisal and appraisal report
• Definition of value (e.g., market, foreclosure, investment)
• Any hypothetical conditions or extraordinary assumptions
• Effective date of the appraisal analysis
• Salient features of the subject property

Based on these factors, the appraiser must identify the scope of work needed, including the methodologies to be used, the extent of the investigation, and the applicable approaches to value. Currently, minimum standards for scope of work are:

• Expectations of the client and other users
• The actions of the appraiser's peers who carry out similar assignments

The scope of work is the first step in any appraisal process. Without a strictly defined scope of work, an appraisal's conclusions may not be viable. By defining the scope of work, an appraiser can properly develop a value for a given property for the intended user, and for the intended use of the appraisal. The whole idea of "scope of work" is to provide clear expectations and guidelines for all parties as to what the appraisal report does, and does not, cover; and how much work has gone into it.

The type of real estate "interest" that is being valued, must also be known and stated in the report. Usually, for most sales, or mortgage financings, the fee simple interest is being valued. The fee simple interest is the most complete bundle of rights available. However, in many situations, and in many societies which do not follow English Common Law or the Napoleonic Code, some other interest may be more common. While there are many different possible interests in real estate, the three most common are:

• Fee simple value (known in the UK as freehold) – The most complete ownership in real estate, subject in common law countries to the powers reserved to the state (taxation, escheat, eminent domain, and police power)
• Leased fee value – This is simply the fee simple interest encumbered by a lease. If the lease is at market rent, then the leased fee value and the fee simple value are equal. However, if the tenant pays more or less than market, the residual owned by the leased fee holder, plus the market value of the tenancy, may be more or less than the fee simple value.
• Leasehold value – The interest held by a tenant. If the tenant pays market rent, then the leasehold has no market value. However, if the tenant pays less than the market, the difference between the present value of what is paid and the present value of market rents would be a positive leasehold value. For example, a major chain retailer may be able to negotiate a below-market lease to serve as the anchor tenant for a shopping center. This leasehold value may be transferable to another anchor tenant, and if so the retail tenant has a positive interest in the real estate.

Valuer and Valuation:

A "valuer" is an individual or professional who is trained and qualified to determine the value of assets, typically real estate or personal property, for various purposes. Valuers assess the worth or fair market value of these assets based on their knowledge, expertise, and analysis of relevant data.

"Valuation" refers to the process of determining the value or worth of an asset, property, business, or financial instrument. Valuation can be performed for a wide range of reasons, including businesses, assets, etc.

If a home inspection is performed prior to the appraisal and that report is provided to the appraiser, a more useful appraisal can result. 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. 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.^[25]

Automated valuation models (AVMs) are growing in acceptance. These rely on statistical models such as multiple regression analysis, or machine learning algorithms.^[26] While AVMs can be quite accurate, particularly when used in a very homogeneous area, there is also evidence that AVMs are not accurate in other instances such as when they are used in rural areas, or when the appraised property does not conform well to the neighborhood.

Computer-assisted mass appraisal (CAMA) 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.^[27]

Geographic-assisted mass appraisal (GAMA) is a generic term for any geographic information system-centric software package used by government agencies to help establish real estate appraisals for property tax calculations.^[28]

Spatial-CAMA (SCAMA) is a general term for mass appraisal where spatial data is used with spatial dependence or spatial heterogeneity models. Spatial Lag Model (SLM) and Spatial Autoregressive Moving Average (SARMA) fall under spatial dependence while Geographically Weighted Regression Models (GWR) falls under spatial heterogeneity.^[29]

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Instant buyer (or iBuyer) is a real estate transaction model wherein companies purchase residential properties directly from private sellers, to eventually re-sell them.^[1][2]

The term ‘instant’ refers to the fact that this type of business aims to provide a faster cash offer on a property than traditional real estate brokers. Valuation of the property takes place online and is an instantaneous or near-instantaneous process which makes use of machine learning and AI technologies.^[2][3][4] Examples of companies using the iBuyer model include Opendoor and ibuyhomes.com.^[1][5][6][7] The term iBuyer was coined by Stephen Kim, an equity research analyst at Evercore ISI on May 29, 2017 in a report to clients titled "The Rise of the iBuyer".^[8]

iBuyer companies use computer-generated analysis of market data, information supplied by sellers, and in some cases input from local real estate agents, to make instant cash offers on residential properties.^[9][10] Individuals wishing to sell their house are asked to enter basic information about the property on a company’s website. In a process largely driven by machine learning and automated data analysis, the property’s approximate value is determined and an initial offer is made.^[1][3][4] If the offer is accepted by the seller, the company arranges an inspection of the property to ensure that the data supplied is concomitant with the actual condition of the building. From a seller’s perspective, the process of selling his or her property can take under two weeks.^[2][6]

Once an iBuyer company has purchased a property, it arranges for any necessary repairs or modifications to be carried out in the building. The property is then re-sold.^[4][10]

Businesses operating under the iBuyer transaction model make their profit on the fees incurred on the seller, which are typically marginally higher (1-4%) than those charged by traditional real estate companies.^[1][11] From an Instant buyer company’s perspective, the higher fees cover the investment risk involved in holding the property for a potentially long period of time.^[12] For a seller, the fees are paid in exchange for a much faster property-selling process than with a traditional real estate model and for avoiding the need to make repairs and improvements to the property prior to selling.^[1][11]