The Appraisal Institute Demonstration Report

1. The Appraisal Institute Demonstration Report General and Residential

2. A presentation designed to take the “Demon” out of demonstration reports.

3. The “DEMO” defined: • A demonstration appraisal report is the most complete presentation of a property appraisal that an individual can produce given the limits of the individual’s abilities, and the market evidence available at the time.

4. What initial advice would you offer to someone who is contemplating writing a demonstration appraisal report? First, obtain and read: A Guide to Demonstration Appraisal Reporting: Residential, or, The Official Guide to Demonstration Appraisal Reporting: General.

5. You will learn not only how to tell time, but How to build the WATCH!

6. Writing a Demo provides life long tools for our professional appraisal careers! • The demonstration report requires a significant commitment of time and energy.

7. The most important step in preparing a demonstration appraisal report is the selection of a subject property. You get to pick the subject property!

8. The Demo is an Open Book Examination!

9. To choose the correct subject property: • Focus on a familiar property type. • Make sure to keep the problem simple. • Pick a neighborhood with ample data. • Select the subject property last.

10. Properties that CANNOT be the subject of a demo report: • A property that is used in a real property course, clinics, seminars, or practicum. • A property that is involved in litigation.

11. Similarities of General and Residential Demos: • Both must comply with Appraisal Institute Standards of Professional Practice. • Both must be completed by the associate “without assistance”. • Both must report appraisals of “market value”. • Both require that statements be justified, conclusions be supported, and evidence be documented. (cont.)

12. Similarities of General and Residential Demos: 5. Both must have effective dates of value within five (5) calendar years of the submission date. (Don’t Forget about Retrospective value opinion requirements. ) 6. Both must have subject building improvements with incurable physical deterioration. (cont.)

13. Similarities of General and Residential Demos: 7. Both must include application of breakdown depreciation. 8. Both have re-grade and revise/resubmit opportunities if the initial submission does not pass. 9. Both have alternatives to a traditional demonstration report. We will cover the residential first, then the general.

14. Available Residential Demo Reports and Alternatives: • Traditional Appraisal Report (1 - 4 Unit Residential Property) • Modular Demonstration of Knowledge Appraisal Report (1 – 4 Unit Residential Property) • Education Package Alternative

15. Traditional Residential Demo Report: • Full narrative reporting style • Subject property must suffer from at least one form of obsolescence, as well as curable and incurable physical deterioration. • Must report development of all three approaches to value. • Must include two methods of accrued depreciation, one of which must be the breakdown method.

16. Modular Residential Demo Report: Four modules must be completed. They are: 1) Sales Comparison Module; 2) Income Module; 3) Cost Approach Module; and, 4) Assessment Module - overall assessment of residential valuation knowledge (locally proctored test). Recommended that at least 2 different residential property types be used within the 3 written modules. The modules may be completed in any order.

17. Dual Credit Demo – Residential /General: • A residential associate may complete a traditional demo report on a residential property with five (5) or more units in an attempt to gain both residential and general demo report credit. • The report is completed under traditional demo report guidelines, and graded by a general demo grader. • If passed, the report counts for residential demo credit, and can later be used for general demo credit. • This requires notice to National Office by the associate at the time the original report is submitted for grading.

18. Education Package Alternative -45 Classroom Hours: • Successful completion of the two course package, including examinations, meets 2008 Qualifying Education requirements of the AQB for certified residential appraisers. • Advanced Residential Applications & Case Studies/Part 1• 15 classroom hours including examination • Advanced Residential Report Writing/Part 2• 30 classroom hours including examination (cont.)

19. Education Package Alternative - 45 Classroom Hours: • The package is intense, and designed to teach the same learning points for technical appraisal and report writing skills as the residential demo report. • The package will require one full week time commitment (two full days, one day off, then four full days). • Part 1 must be taken prior to Part 2. • Parts should be taken back-to-back. (cont.)

20. Education Package Alternative - 45 Classroom Hours: • No research is necessary prior to attending, but homework assignments must be completed for submission during the courses. • Package offerings are scheduled nationwide for 2009. • Check www.appraisalinstitute.org for details.

21. Important! If you have been an active residential associate member prior to January 1, 2005, you should contact a counselor in the National Office to determine your status and discuss appropriate path options!

22. General Demo Report and Alternatives: • Traditional Appraisal Report • E-Demo Appraisal Report • Three Appraisal Reports Alternative, or “TARA” (All Other Than 1 – 4 Unit Residential Property) • Research Project Alternative

23. Required General Demo Elements: • Traditional Appraisal Report Options • Obsolescence Option • FMA Option • E-Demo Alternative • Obsolescence Option • FMA Option • A fundamental market analysis (FMA) MUST be developed to at least Level C, approaching Level D. • Obsolescence must be market derived and measurable. • The property selected MUST suffer from incurable long-lived physical deterioration. If more forms of depreciation or obsolescence are present, they must be properly treated. The breakdown method of depreciation MUST be applied. (cont.) Content of these alternatives is the same

24. E-Demo Procedures • Associates will be paired with an Advisor • Submit Preliminary Market Data and FMA • Communication will be conducted through the “Communities of Practice” software • Associates must have the capacity to submit sections of the report and the final report by converting to an Adobe PDF file

25. E-Demo Procedures • Sections of the report will be evaluated by the advisor throughout the process • Once the final report is completed, the associate will submit for a final grading • Timing for submission of sections will be based on an agreement between the advisor and the associate, at the outset • Overall report and process must be completed by the end of six months

26. Required General Demo Elements: • The appraisal MUST analyze the effect of expenses on rents and total occupancy cost in the development of a net income stream, even if only net leases are involved. • The property MUST allow the Associate Member to demonstrate appraisal techniques applicable to the three approaches to value. (cont.)

27. Required General Demo Elements: • The report should pertain to an “as-is” valuation; extraordinary assumptions and hypothetical conditions may be inappropriate. Get in touch with the Demo Panel Chair if you have a particular problem in this area!

28. DEMO FAQs(General and Residential) If I have written a passing demonstration for another organization, will it be accepted by the Appraisal Institute? To receive Appraisal Institute credit, the demo report must meet the requirements of Appraisal Institute and be graded by Appraisal Institute.

29. DEMO FAQs(General and Residential) When are reports sent for verification of factual data? When a demo report meets technical requirements (receives a passing grade), it is sent for factual verification. It is not re-graded.

30. DEMO FAQs(General and Residential) How do I resolve the contradictory information on methods and techniques that I may have received from various texts, seminars, teachers, and other sources? No grader will dispute the authority of the latest edition of The Appraisal of Real Estate. If you think a method or technique used in your report may be controversial, help the grader by citing your source.

31. DEMO FAQs(General and Residential) How long should the report be? Most demo reports are too long. Understandably, associate members are reluctant to risk being downgraded for omissions or insufficient explanation. Although some associates are able to write completely and succinctly, others find this very difficult. (cont.)

32. Demo Report Length FAQ (cont.) Experience shows that reports often run long due to redundancy, inclusion of extraneous material, and misunderstandings about what the problem is, and how it should be solved. Most writers use too many words when they should strive for the best words. THE GOAL SHOULD BE TO WRITE PRECISELY AND CONCISELY

33. TARA Description:Three Appraisal Report Alternative As an alternative, the general associate may submit three full narrative appraisal reports which, in the aggregate, demonstrate the same level of knowledge, understanding, and application of appraisal principles, theories, and techniques.

34. Important TARA Requirements • The reports must be prepared without assistance or revision by another person. • If an associate plans to submit a draft appraisal report to another appraiser for possible approval or revision, the associate must save a copy of the draft report. • The associate may enhance the draft report to expand the analyses, reconciliation, or other aspects to meet the requirements listed for the three appraisal reports.

35. Required TARA Requirements • The reports must relate to real property other than 1 – 4 unit residential; • Each appraisal must be communicated in a full narrative format; • Each date of value must be no more than five (5) calendar years prior to the year of submission to the Appraisal Institute;(Remember to properly handle retrospective opinions according to USPAP, if applicable!) • Each report must meet the applicable appraisal standards; and, (cont.)

36. Required TARA Requirements Each report must contain the types of analyses listed below: 1. At least one report MUST include all three approaches to value. 2. At least one report MUST include a fundamental market analysis. 3. At least one report MUST include a yield capitalization analysis. 4. At least one report MUST include a direct capitalization analysis. 5. Each report MUST contain a reconciliation as outlined in The Official Guide to Demonstration Report Writing. (This effectively eliminates single-approach appraisals).

37. TARA FAQs Can I just submit three appraisals off the shelf? This depends on the quality of work you have been performing. Recognize that this alternative to the traditional demonstration report will be graded to the same standards. It is likely that enhancement of the reports will be necessary.

38. TARA FAQs I work for a company, and all of my reports are co-signed. Can I still use this alternative? This is an area where proper planning can be of great assistance. The reports submitted for grading must reflect your sole work. As such, a report that is co-signed does not qualify.

39. TARA FAQs Can I submit one report that meets all of the requirements along with two single approach appraisal reports? No. At least one report must have all three approaches to value and the remaining reports must have a reconciliation as outlined in The Official Guide to Demonstration Appraisal Reporting: General.

40. TARA FAQs I received a non-passing grade on my submission, and would like to stipulate which report gets graded for the various sections. Can I do this? No. If the TARA submission fails to meet technical grading requirements, the associate is only allowed to revise and resubmit the same reports and the same sections, originally graded and addressed in the Report to the Associate.

41. TARA FAQ I received a non-passing grade on my submission, and would like to substitute one or more of the reports. Can I do this? No. If the TARA submission fails to meet technical grading requirements, the associate is only allowed to revise and resubmit the same reports, and same sections, originally graded and addressed in the Report to the Associate.

42. Research Project Alternative -Important Points: • Requires either a Body of Knowledge project, or a consulting assignment project. • This alternative was not intended for appraisers practicing in the U.S., U.S. territories, or Canada. • It is intended for those associates who are in an academic setting, or who are in other foreign countries. • Read AI Regulation No. 1, Article III, Part F, Section 8.

43. TOOLS TO USE: • Current Textbooks • One Day Demo Report Writing Seminars • Demo Writing Workshops • Four days with direct grader contact • There will be offerings set up for 2009. Contact national for possible dates.

44. TOOLS TO USE (CONTINUED): Appraisal Institute Web site - www.appraisalinstitute.org - Demo guides - Grading sheets - Course, seminar, & workshop schedules 44

45. TOOLS TO AVOID: • Outdated textbooks and materials. • Former graders no longer currently trained on grading requirements. • Someone who has written a demo report and not been successful. • Someone else’s demonstration appraisal report. (You don’t know which sections they passed, and by how much, or which they didn’t!)

46. The Associate and Prospective Member Service Center Can Provide Assistance to Associate, Affiliate, and Prospective Members • Counseling for membership requirements • Setting up designation path outlines for associates seeking a designation • Explaining requirements to obtain designation • Clarifying membership categories to prospective members • Updating contact information • Assisting in dues payments

47. Questions! Charles J. Lentz, MAI Chair, Demonstration Appraisal Report Grading Panel clentz@irr.com Stephen S. Wagner, MAI, SRA, Vice-Chair, Demonstration Appraisal Report Grading Panel sswagner@comcast.net Associate & Prospective Member Services Team 312-335-4111 associates@appraisalinstitute.org

48. GET STARTED NOW! “90% of accomplishment is beginning.” -Albert Einstein

49. Thank you for attending! Now, take the next step… Get the Demon out of your Life - WRITE YOUR DEMO!