ARU Knowledge About the Appraisal Process Discussion Response

please respond to. Krystal

Krystal Ramirez-Pichette

BRE-120, Real Estate Appraisal 

Textbook Author: Walt H., Levin P., William P. 

Chapters 3 & 4

October 28, 2023

Overview

The three key concepts discussed in this week’s reflections summary are The Eight Steps of the Appraisal Process, “Hoskold Method” or Sinking Fund Method, and “Inwood” Method. Chapter 3 discusses the eight steps of the appraisal process and why it is essential. Chapter 4 discusses the Hoskold and Inwood methods and why it is important to understand. 

Key Concept from Chapter 3 

Chapter 3, The Appraisal Process, The Eight Steps of the Appraisal Process. As mentioned in our textbook, “The orderly process utilized by appraisers to obtain a reliable and competent opinion of value is commonly called the Appraisal Process” (Walt, et al., 2018, p. 73).  There are eight steps to the appraisal process, which are:

Define the appraisal process problem.

Preliminary analysis. 

Collect, verify, and analyze the necessary data.

Determine the property’s highest and best use. 

Estimate the value of the site. 

1. Apply the three approaches to value. 
2. Reconcile the various value indicators to reach a final value estimate. 
3. Prepare and deliver an appropriate appraisal report.
4. Key Concept from Chapter 4
5. Chapter 4, Property Description and Appraisal Math, “Hoskold Method” or Sinking Fund Method. “The Hiskold Method gives the present value of annual recapture amounts on an investment if put into a sinking fund account earning interest at a safe rate (the equivalent of U.S. government bond rate)”  (Walt, et al., 2018, p. 133). This method is rarely used anymore because it provides for capital recovery by assuming that the return-of-investment portion of the cash flow is deposited in a low-yielding sinking fund.  
6. Key Concept from Chapter 4
7. Chapter 4, Property Description and Appraisal Math, “Inwood” Method. “The Inwood Method holds that the present value of recapturing an investment from an income stream is based on a single discount rate”  (Walt, et al., 2018, p. 133).  The Inwood method assumes that the return of capital sub-flow is reinvested at rate k. In contrast, the Hoskold method assumes reinvestment at rate r–a rate considered available on low-risk investment opportunities.
8. Summary

In Chapter 3, I learned about the appraisal process and the eight steps of this process. I found it essential to learn about the eight steps and why they are used. In Chapter 3, I learned about two different methods that have been used, which are the Hoskold Method and the Inwood Method. I learned that modern-day investors do not use the Hoskold method because it does not earn a higher rate of return on investment.