Tag: Real Estate Appraisal

what is real estate and how to invest, Types of Real Estate, How and where to invest in real estates

What is Real Estate & How to Invest

On By Rainier EstatesIn Blogs, Real EstateLeave a comment

What is Real Estate?

What is real estate and how to invest

Real estate refers to land and any structures or improvements on it, whether they’re natural or human-made. Unlike personal property like cars, boats, jewelry, furniture, and farm equipment, real estate stays fixed to the land.

Key Points are:

  1. Real estate refers to land and anything permanently fixed to it, whether by nature or human construction.
  2. The five primary types of real estate are residential, commercial, industrial, raw land, and special use.
  3. When you invest in real estate, you might buy a home, rental property, investment property or land. You can also invest indirectly in real estate through REITs or pooled real estate investments.

Meaning of Real Estate in simple words:

People often use the terms land, real estate, and real property interchangeably, but they have distinct meanings.

Land encompasses the earth’s surface extending down to its core and reaching up to the airspace above, which includes plants, trees, minerals, and water. Each piece of land is unique in its geographical location, characterized by its immobility, indestructibility, and distinctiveness.

Real estate includes the land and any permanent structures built on it, like houses and other buildings. We refer to any additions or changes that impact the property’s value as improvements.

When you improve land, the combined labor and capital spent on the enhancements make up a significant fixed investment. While you can demolish a building, features such as drainage, electricity, and water and sewer systems usually remain permanent.

Real property consists of the land, its enhancements, and the inherent rights of ownership and use.

Real Estate Appraiser

A real estate appraiser gives both you and your mortgage lender an impartial valuation of the home. For those buying a home, an appraiser can confirm whether the house’s price is just and accurate. If you’re a homeowner considering mortgage refinancing, an appraiser can assist in determining if your home’s value has risen, potentially making refinancing worthwhile.

Types of Real Estate:

Residential: People use residential real estate for living. This includes homes like single-family houses, condos, co-ops, duplexes, townhouses, and buildings with multiple apartments.

Commercial: Businesses operate from commercial real estate. Think of places like apartment buildings, gas stations, grocery shops, hospitals, hotels, offices, parking lots, restaurants, malls, shops, and theaters.

Industrial: Manufacturers and researchers use industrial real estate for tasks like making goods, storing them, or conducting experiments.

Land: Land covers undeveloped plots, empty spaces, and farming areas including farms, orchards, ranches, and forests.

Specific Purpose: We all access special purpose properties: cemeteries, government offices, libraries, parks, religious spots, and schools are some examples.

Real Estate Agent

A licensed real estate agent connects buyers with sellers and represents them in real estates legal discussions. Typically, they earn a commission based on a percentage of the home’s or commercial sale price.

Financial Dynamics of Real Estate Market:

2023 will be tough for commercial real estate due to rising interest rates and a looming recession. Even though inflation slowed down by the end of 2022, it was still a whopping 7%. The Fed aims to bring this closer to its 2% target and will keep pushing up rates until that happens. Because of these financial pressures and the increasing cost of capital, property values will likely drop.

But there’s some good news. This recession won’t hit too hard. Companies are financially stable, and they’ll try to avoid big layoffs to keep their skilled workers, given the competitive job market. People might be feeling cautious about spending, but on average, families aren’t carrying as much debt as they did before past recessions. This means we might see only a slight increase in unemployment, probably not going past 6%. By the latter half of 2023, inflation should dip, leading to decreased interest rates and kickstarting a new economic phase that could stretch into the 2030s.

How and Where to Invest?

Buy Real Estate Investment Trusts (REITs)

REITs let you put your money into real estate without actually buying property. Think of them like mutual funds, but for properties like offices, shops, apartments, and hotels. They usually give out generous dividends, so many people use them for retirement savings. If you don’t want the cash now, you can roll those dividends back into your investment to make it grow even more.

Real Estate Limited Partnerships (REPL)

A real estate limited partnership (RELP) lets investors pool their funds with others to buy, lease, develop, and sell properties. This partnership offers a diverse range of real estate investment opportunities, making it easier for you to invest in properties that might be challenging to manage or purchase on your own.

Just like REITs, RELPs often have a collection of properties. However, they’re different in how they’re set up and organized. First off, RELPs are private equity, meaning you won’t find them on public stock exchanges.

They usually run for a set time, often between seven and 12 years. During this period, RELPs operate like mini-companies. They create a business plan, pinpoint properties to buy or develop, manage them, and eventually sell them, sharing the profits as they go. Once they’ve sold all their properties, the partnership ends.

Think about investing in properties to renovate and sell for a profit (house flipping)

It’s like living an HGTV episode: You buy a low-priced home that needs some TLC, fix it up on a budget, and then sell it for a profit. This approach, known as house flipping, is a tad more challenging than TV makes it seem. With today’s increased costs for building materials and rising mortgage interest rates, it’s pricier than before. As a result, many house flippers prefer to purchase homes with cash.

Lease a space

Consider renting out a section of your home. This approach can significantly cut down on housing expenses, letting homeowners enjoy the rising value of their property.

Inviting roommates can also help younger individuals manage mortgage payments. If you’re hesitant, give platforms like Airbnb a shot. It’s a low-commitment form of house hacking: you won’t deal with long-term tenants, Airbnb somewhat screens potential renters, and they offer a host guarantee to cover damages.

Utilize a digital real estate investment platform

Real estate investment platforms link real estate developers with investors keen to fund projects, either as debt or equity. Investors aim to get monthly or quarterly payouts, but they take on a high risk and pay a fee to the platform in return. Unlike many real estate investments, these are speculative and not easily sold like stocks.

We hope this blog heled you understand what is real estate and how to invest in it over time!

Original art, fine art, antiques, collectibles, collection, appraisal, estate planning

What is an Appraisal and Appraisal Types

On By Rainier EstatesIn Appraisals, Blogs3 Comments

Personal Property Appraisals are an important tool for many different situations, such as estate planning, insurance, and charitable giving. At Rainier Estates, we work with clients across the Puget Sound region to provide professional appraisal services, and our team created this helpful overview of all aspects regarding personal property appraisals.  

Appraisal Definition:

Personal property, also referred to as tangible personal property, encompasses movable assets that are not permanently affixed to real estate. This includes items like furnishings, artwork, antiques, collectibles, jewelry, equipment, vehicles, intellectual property, and more. Essentially, personal property is composed of all physical possessions other than real estate.

Personal property can be divided into two main categories – depreciable and appreciable. Depreciable personal property decreases in value over time and with use, like furnishings, electronics, vehicles, machinery, etc. Appreciable personal property generally increases in value over time, like fine art, antiques, vintage items, rarities, and other collectibles.

Understanding the nature of personal property is important because it determines the valuation methodology and informs the appraisal process. Since personal property is movable, it requires different assessment approaches compared to real estate. Values are influenced by different factors like condition, provenance, rarity, aesthetic qualities, and intangible associations that do not impact real property.

The Role of a Appraiser:

A personal property appraiser provides an independent, impartial professional opinion on the value or replacement cost of identified personal property assets. Appraisers must have the proper credentials, qualifications, and affiliations to appraise different types of property.

For example, appraising residential contents requires different expertise than appraising antiques, machinery, jewelry, or fine art. There are no universal regulatory bodies that oversee or license personal property appraisers. Instead, appraisers obtain credentials through various professional appraiser organizations and must commit to ongoing education and ethical codes of conduct.

Appraisers are not authenticators – they rely on specialists for authentication. Their role is to research, inspect, analyze, and develop an unbiased, justified opinion on the value of property. Appraisals need to be updated every 3-5 years to remain current. Relying on outdated appraisals or non-professional valuations often leads to problematic outcomes.

Common Types of Appraisals:

  • Insurance Appraisals: Required to adequately insure items above standard policy limits, which are often quite low for categories like jewelry, fine art, antiques, collectibles. Needed to settle claims – having a recent appraisal simplifies the claims process significantly.
  • Liquidation Appraisals: Assess the orderly liquidation value of personal property that must be sold or divested relatively quickly, such as the contents of a home for an estate sale. Consider the type of sale venue and time frame.
  • Probate Appraisals: May be required during the probate process to value estate assets above a certain threshold, especially for tax compliance purposes. Can help divide property among heirs and beneficiaries.
  • Trust Appraisals: Provide current values for property held in trusts, which may be required to obtain insurance coverage, calculate taxes, or distribute to beneficiaries.
  • Inheritance Tax Appraisals: In addition to federal estate taxes, some states levy separate inheritance taxes. Specific appraisals tailored for state requirements may be needed.
  • Guardianship Appraisals: Allow court-appointed guardians to make sound decisions regarding the management, sale, or distribution of property they are overseeing for someone else.
  • Casualty Loss Appraisals: Analyze the decrease in fair market value of personal property lost or destroyed due to theft, disaster, accident, or other catastrophic event for claiming tax deductions.
  • Asset-Based Lending Appraisals: Establish the value of personal property used as collateral for securing business or personal loans, lines of credit, and other debt obligations.
  • Charitable Donation Appraisals: Document the fair market value of non-cash charitable contributions for tax deduction purposes. An appraisal is required by the IRS for donated property valued at $5,000 or more.
  • Loss/Damage Claim Appraisals: Assess the specific damage or loss in value of an item attributable to an insured incident in order to settle insurance claims. Differs from a standard appraisal.
  • Equitable Distribution Appraisals: Used to determine the fair, just distribution of personal property and contents that were jointly owned, often in divorce proceedings or probate disputes.

Selecting a Qualified Appraiser:

Choosing a qualified appraiser to value your assets is critical, and yet can be challenging given the lack of licensing and minimal regulation for personal property appraisers. It will be important to take a more-hands-on role in vetting and selecting your appraiser (like Rainier Estate’s founder, Lisa Taylor). Here are important factors to look for:

  • Compliance with the Uniform Standards of Professional Appraisal Practice (USPAP).
  • Membership in professional appraiser organization like the American Society of Appraisers (ASA), International Society of Appraisers (ISA), or National Auctioneers Association (NAA, which offers Graduate Personal Property Appraisal GPPA certification).
  • Relevant education, degrees, and professional training in personal property appraisal concepts and methodology.
  • Documented experience appraising similar types of property like yours.
  • Charges reasonable hourly or flat project rates rather than percentages of valuation, which can be unethical.
  • Provides appraisal reports meeting IRS requirements and your intended purpose.

It’s also recommended to verify credentials, seek references, and interview prospective appraisers before engaging services. By choosing an appraiser from a reputable group (such as those mentioned above), you can more easily avoid mistakes or oversights.

Common Purposes for Appraisals:

When engaging an appraiser, they will first need to understand your intended purpose in order to determine the appropriate type of value definition to apply during the valuation process. Some typical purposes for personal property appraisals include:

  • Death: Estate planning and probate are one of the most common reasons to get an appraisal. A detailed appraisal will be needed to accurately distribute inheritances to heirs, calculate inheritance tax, and maximize proceeds from estate sales and auctions.
  • Debt: In situations involving debt, appraisals can be used for establishing values for bankruptcy filings, divorce settlements, loan collateral, and asset division.
  • Damage: When an item is damaged, a written appraisal can be the most important piece of evidence for an insurance company (if you didn’t get an appraisal before the damage, it can result in lost or diminished claims). An appraisal can also be used for filing casualty loss deductions with the IRS after catastrophic events.
  • Divorce: In the case of a divorce, an appraisal is needed for an equitable distribution of marital assets and shared personal property. It’s highly recommended to get an appraisal for all assets before either party is allowed to remove any items.
  • Donation: When you are making a generous charitable donation, you want to ensure that you’re receiving the maximum tax benefits. An appraisal will substantiate the fair market values required by the IRS for claiming charitable contribution tax deductions.
  • Downsizing: During this stressful transition, an appraisal can be a helpful tool when preparing possessions for sale, or determining which items you would prefer to keep based on their appraised values.
  • Collateral: An often-overlooked use for appraisals. Banks can extend personal loans or lines of credit based on appraised values of personal property (such as art collections, jewelry, etc). The appraised items are used as collateral in this instance.

Typical Appraisal Report Contents:

A professional personal property appraisal report will contain extensive details about the property, analyses performed, research conducted, and the valuation conclusions. While formats can vary, appraisal reports typically include the following:

  • Title page clearly identifying the report subject, location, value type, and valuation date
  • Letter of transmittal (a type of cover letter accompanying a financial report) summarizing key information
  • Table of contents
  • Signed certification page with applicable standards
  • Summary of important conclusions 
  • Photographs of property
  • Overview of property location and condition 
  • Statement of appraisal type (complete or limited) and report type (self-contained, summary, restricted use)
  • Disclosure of extraordinary assumptions or hypothetical conditions affecting the valuation
  • Statement of general assumptions and limiting conditions on the appraisal
  • Identification of intended use and intended user per engagement terms
  • Detailed scope of work performed by the appraisal
  • Definition and effective date of value
  • Thorough description and condition assessment of the personal property
  • Discussion of current ownership and relevant sales history, if available
  • Highest and best use analysis for the personal property
  • Application of relevant valuation approaches with explanations
  • Depreciation analyses (physical, functional, economic) as applicable
  • Market research, case studies, and comparative analyses to support conclusions
  • Reconciliation of approaches into a final opinion of value
  • Statement of appraiser’s professional qualifications and credentials
  • Addenda with supporting exhibits, documents, and supplementary data

Keep Your Appraisals Updated:

You may be thinking that getting a personal property appraisal is a “one and done” task, but that’s not the case. The value of personal property items like collectibles, jewelry, art, antiques, and other household contents fluctuates over time, so it’s advisable to have appraisals updated or reviewed every few years.

 Why would the appraised value change?

  • Market Conditions. Supply and demand for certain items may increase or decrease over the years. More demand drives prices up. More supply drives prices down. Collectibles often behave like stocks, and you want to buy and sell at the right time!
  • Economic Factors. Values tend to track inflation and consumer price indexes. Inflation makes money less valuable over decades, and therefore can also impact appraised values.
  • Popularity and Trends. Styles and collecting preferences come in and out of fashion. Trendy items become worth more, while outdated items lose appeal.
  • Rarity. For collectibles, the number of surviving artefacts determines rarity. As items become more rare over time, values often increase.
  • Condition. Items deteriorate with age and use. An antique in poor condition is worth less than one in excellent shape. Conversely, a restored antique can have dramatically increased value. You want to ensure that your appraisal accurately captures current condition.
  • Historical Significance. Some items gain importance as they age, like artifacts from significant historical events. For instance, an artist’s work will often increase in value after their death.
  • New Discoveries. When new information about an item comes to light, it can positively or negatively impact value. Examples include newly discovered provenance of an artwork or recent auction results.

In summary, many forces cause personal property valuations to change over years or decades. Markets fluctuate, tastes change, items deteriorate. What was commonplace 30 years ago may be collectible today. And condition is paramount. Well-preserved items command premium prices. Appraised values must capture how all these dynamics affect current worth.

Summary:

Appraising personal property assets like collectibles, jewelry, art, antiques, vehicles, equipment, and other valuables requires specialized expertise. Appraisers must have extensive training in property valuation concepts, methodologies, and report standards.

Appraising personal property assets serves a variety of important purposes, including the following:

  • Ensures adequate insurance coverage reflecting current values
  • Provides loss verification and documentation critical for settling insurance claims
  • Allows equitable distribution of property in divorce, estate disputes, bankruptcies, and contract dissolutions
  • Enables prudent property management by trustees, guardians, executors, and other fiduciaries
  • Maximizes proceeds when assets must be sold in downsizings, relocations, estate sales, auctions
  • Substantiates charitable deductions and reduces taxes owed on donations
  • Verifies casualty losses for claiming tax deductions after catastrophic events
  • Facilitates lending decisions by establishing collateral values for asset-based loans
  • Streamlines inheritance planning and probate resolution for beneficiaries

By providing extensively researched, impartial third-party expert opinions on the value of personal property, appraisals help minimize conflicts while optimizing outcomes.

Addendum: Real Estate Property Appraisals:

In addition to appraising the value of your personal property, it is often necessary to appraise the value of real estate property as well. Real estate appraisals require niche skills and training, completely separate from the qualifications required for personal property appraisal.

What is a Real Estate Appraisal?

A real estate appraisal is a professional opinion of what a home or property is worth on the open market. This is a requirement for most banks to loan on a property, estate asset distribution, and more.

Who Does Real Estate Appraisals?

Real estate appraisals are done by licensed appraisers (these licenses are typically provided by the state, Washington included). Appraisers have training requirements and must follow industry standards and ethics rules.

Real Estate Appraiser Qualifications and Training:

Education

  • Bachelor’s degree in subjects like real estate, finance, economics, business, or statistics is often required
  • Coursework in valuation principles, property analysis, market analysis, and appraisal methodology

Licensing

  • Must obtain state license to perform appraisals meeting federal guidelines
  • Multiple levels – Licensed, Certified Residential, Certified General
  • Higher levels need more experience hours and examination requirements

Appraisal Education

  • 75+ hours of approved qualifying education required before initial licensing
  • 30+ hours of continuing education every 2 years to renew license

Professional Experience

  • 1,000 – 3,000 hours of documented appraisal experience needed, depending on license level
  • Experience requirements increase for higher certifications
  • Mentorship by experienced appraiser often required

Examinations

  • Must pass National Uniform Licensing and Certification Exams
  • Test knowledge of appraisal methods, standards, ethics, and federal regulations
  • Additional specialty exams required for higher Certified designations

Adherence to Standards

  • Expected to follow Uniform Standards of Professional Appraisal Practice (USPAP)
  • USPAP sets standards for ethical behavior and acceptable appraisal methodology

In summary, real estate appraisers must meet rigorous qualification requirements through training, experience, testing, and professional affiliations. Proper credentials guarantee appraisers have the skills to provide fair, accurate, and unbiased property valuations.

Why Get a Real Estate Appraisal?

There are several common reasons to get an appraisal:

  • To establish a sale price for a property
  • To challenge a property tax assessment
  • To determine value before making an offer
  • To verify value for a mortgage loan
  • To get insurance for rebuilding a damaged property
  • To substantiate value for inheritance taxes
  • To confirm value for property division in a divorce

What’s in a Real Estate Appraisal Report?

A typical property appraisal report contains:

  • Details of the property like square footage, bedrooms, baths
  • Photos of the property exterior and interior
  • Sales of comparable nearby properties
  • Analysis of values using approaches like cost, income, sales comparison
  • Adjustments to comparable sales for differences like upgrades
  • Statement of the property’s estimated value and effective date

How are Properties Appraised?

Appraisers use market research and valuation methods to justify their opinion of value. Some of the key considerations that appraisers analyze in their report:

  • The property’s features – age, size, condition, renovations
  • Sales prices of similar homes sold recently in the same area
  • Replacement cost to rebuild, factoring in depreciation
  • Market trends for the neighborhood, city, and region
  • Income generated by rent for investment properties

Every property is unique, and therefore it’s important to hire an appraiser with a detail-oriented approach and keen understanding of the current real estate market (often connecting with local agents or brokers to gain more knowledge of niche markets).

Often the bank hires the real estate appraiser, but that doesn’t mean you can’t have a positive impact on the final appraisal outcome. See the helpful guidance below.

Tips for Getting a Good Real Estate Appraisal:

  • Hire an appraiser with local experience and strong reviews
  • Give the appraiser property details like surveys and inspection reports
  • Provide a list of property upgrades and unique features
  • Share information that may impact land value like pending new developments
  • Make any necessary small repairs, especially those that are visible
  • Get a professional floor map of your house that includes a square footage calculation (we’ve had clients gain square footage as a result of doing this, because in the past the accurate technology to calculate sqft wasn’t available)