Fundamentals of Real Estate Appraisal: Value, Use, and Users

This chapter introduces the core concepts of value, use, and users in real estate appraisal. The chapter aims to define the Standard of Value, Intended Use, and Intended Users of real estate appraisal. Defining these elements is critical to ensuring the credibility and validity of the appraisal, and providing valuable information for decision-makers. The Standard of Value determines the type of value sought (market value, insurance value, tax value, etc.). The Intended Use clarifies the purpose for which the appraisal will be used (obtaining a loan, determining fair compensation, settling an estate, etc.). The Intended Users identify the parties who will rely on the appraisal information (lenders, insurance companies, government agencies, etc.).

The chapter's scientific importance lies in establishing a correct understanding of the theoretical framework underlying real estate appraisal. Understanding these concepts helps the appraiser to:

• Accurately define the Scope of Work: Knowing the Standard of Value, Intended Use, and Intended Users determines the level of research and development, and the depth and complexity of the report.
• Avoid errors and biases: Understanding the true purpose of the appraisal allows the appraiser to focus on collecting relevant data and applying appropriate methods, reducing the chances of errors.
• Provide credible and valuable appraisals: When the appraisal is clear and accurate in defining its purpose and users, it becomes more reliable and trustworthy for the parties involved.

This chapter focuses on the fundamental concepts of value, use, and users in real estate appraisal. A deep understanding of these concepts is essential for accurate and reliable appraisal that effectively meets the needs of stakeholders.

The scientific importance of this chapter lies in establishing a theoretical and applied understanding of the key determinants that guide the appraisal process. Value, as an economic concept, changes according to the market and its conditions, while the expected use of the property is significantly affected by legal, regulatory, and social factors. The intended users of the appraisal represent a diverse group of parties, each with different needs and interests. Neglecting any of these three elements may lead to inaccurate assessment, resulting in incorrect investment or financial decisions.

The chapter will define "Standard of Value" and its importance in determining the type of information the client seeks through the appraisal, such as market value, insurance value, or tax value. It will also discuss the "Intended Use" of the appraisal, which refers to the purpose for which the client plans to use the appraisal, such as obtaining a loan, determining value for expropriation purposes, settling an estate, or determining the amount of insurance. Finally, it will address the "Intended Users" of the appraisal, who are the parties who will rely on the information in the report to make their decisions. Various examples of intended uses and users of the appraisal will be reviewed, emphasizing that an appraisal designed for a specific purpose and specific users may not be suitable for other purposes or other users.

This chapter is a cornerstone in understanding the real estate appraisal process, focusing on the purpose of the appraisal and its dimensions. In the dynamic real estate appraisal world, accurate value determination requires a deep understanding of the considerations affecting value estimation. The term "purpose of the appraisal" is being replaced by "standard of value" to reduce terminological confusion.

Real estate appraisal is a complex process based on scientific and methodological foundations, not merely a numerical value estimation. Appraisal is based on established economic and real estate principles and is influenced by market factors, the environment, and regulations. Understanding the purpose of the appraisal guides data collection and analysis, appropriate methodology selection, and reliable and credible results. Understanding the intended users and uses of the report directly affects the scope of work and complexity of the report.

This chapter focuses on three core elements:

• Standard of Value: Exploring different types of values sought by the client, such as market value, insurance value, tax value, use value, and investment value, and discussing the factors affecting the selection of the appropriate standard of value.
• Intended Users: Identifying the parties relying on the appraisal results, whether the direct client or other parties such as lenders, insurance companies, or government entities, which helps understand the appraiser's responsibilities to the various parties involved.
• Intended Use: Reviewing the different ways the appraisal can be used, such as obtaining a loan, determining fair compensation in cases of expropriation, settling an estate, or determining the appropriate insurance amount, where understanding the intended use guides the scope of work and the level of detail in the report.

Real estate appraisal is fundamental to economic decision-making related to real estate, including investment, financing, legal, and tax decisions. Accurate and reliable appraisal requires a deep understanding of the appraisal's purpose.

This chapter, "The Purpose of the Appraisal: Value Standards, Use, and Users," focuses on identifying the core elements that define and guide the context of real estate appraisal. The term "Value Standard" replaced the term "Purpose" to clarify confusion between "Purpose and Use".

This chapter aims to clarify these fundamental terms, providing trainees with the knowledge and skills to identify the appropriate value standard, the intended use of the appraisal, and the intended users of the appraisal report. These three elements - Value Standard, Intended Use, and Intended Users - constitute the purpose of the appraisal and are necessary to define the appropriate scope of work, the required level of research and development, and the appropriate depth and complexity of the report.

The scientific importance of this chapter lies in establishing the foundations for sound professional practice in real estate appraisal. Precisely defining the purpose of the appraisal ensures adherence to professional and ethical standards, resulting in a relevant and reliable report for the intended users. A deep understanding of different value standards contributes to the application of appropriate valuation methods and techniques, leading to a fair and accurate estimation of property value.

This chapter focuses on three fundamental and interconnected concepts in real estate valuation: Standard of Value, Intended Use, and Intended Users.

Identifying the required type of value is essential, such as market value, insurance value, or tax value. This guides the appraiser's work and determines appropriate tools and methods. Understanding the purpose of the valuation is also critical, whether for financing, expropriation compensation, or estate settlement. Knowing the purpose helps define the scope of work. Identifying the intended users (e.g., current owner, potential buyer, financial institution) helps tailor the report to their needs for informed decision-making. Neglecting these concepts leads to inaccurate or misleading valuations, potentially resulting in financial losses or legal disputes.

The chapter aims to provide trainees with the knowledge and skills to understand and apply real estate valuation standards related to value, use, and beneficiaries. Upon completion, trainees will be able to: identify different types of value used in real estate valuation; determine the intended uses of real estate valuation and explain how the purpose affects the valuation process; determine the intended beneficiaries of the real estate valuation and explain how their needs affect the content of the report; apply these standards in different practical scenarios; understand how determining these factors (value, use, and beneficiaries) affects the scope of work of the appraiser.

Real estate appraisal is a complex process requiring a precise understanding of the real estate market, regulations, and core concepts governing property valuation. "Intended Use," "Intended Users," and "Standard of Value" are fundamental pillars in defining the Scope of Work and the reliability of the appraisal. This chapter is dedicated to addressing these concepts in detail and highlighting their scientific importance in the context of real estate appraisal.

Understanding Intended Use, Intended Users, and Standard of Value ensures the accuracy and suitability of the assessment. Without a clear definition of these elements, the assessment is subject to bias, misinterpretation, or misuse, potentially leading to serious financial and legal consequences. These concepts are an integral part of the ethics of the valuation profession and contribute to maintaining the integrity of the process and ensuring fair real estate transactions. They are necessary for understanding and analyzing market data correctly, choosing appropriate valuation methods, and documenting results transparently.

This chapter will systematically review:

• Intended Use: The purpose for which the real estate appraisal will be used, such as obtaining a loan, determining value for tax purposes, or settling an inheritance.
• Intended Users: The parties who will rely on the assessment to make their decisions, whether it is the client, the lender, the court, or others.
• Standard of Value: The type of value the client seeks, such as market value, insurance value, investment value, or use value.

The chapter will also discuss how these three elements affect the Scope of Work, including the level of research and analysis required and the depth of the final report.