Evening star., 1927-03-19
UNIFORM Apr RAISAL PROGRAM
IN NEW PROJECTS ADVOCATED
Proposed Standard Code Is Submitted to
American Construction Council
Unit by W. J. Moore

sale before the various State securit,
commissions, explained Mr. Moore
Their costs have been largely in
creased and their business operation
seriously interfered with because o1
the widespread lack of uniformity In
State requirements. especially as tC
factors Of valuation to be considered
in appraisal of proposed building
projects.
| THE difference of opinion on the
part of appraisers, and particularly
on the part Of the securities commits
sions of the various States, has been
widespread. They have especially diff
| fered as to what constitutes fair
actual cost and fair market value
Analysis IF decisions and ruling
by the courts and public utility com.
missions in numerous cases involving
| valuations for the purpose of fixing
| rates for public utilities or railroads
show that many Of the intangible and
so-called overhead charges which
have been disallowed for inclusion as
sound costs in real estate bond field
appraisals, are universally permitted
in various other fields Of activity.
Among the items Of cost that have
been recognized as legitimate by the
various State regulatory and other
rate-making bodies, are-cost of
financing, interest during construc-
ton, brokerage, general taxes, title
and legal expenses, insurance, organi-
zation expenses and contingency al
lowance, loss incurred IN putting prop
erty on going basis, etc. With these
items recognized as legitimate costs
in appraisals in the public utility field,
the real estate bond industry surely
has an established precedent and a
InGx 10, faI tA hSrr ~,
to establish an adequate, workable
valuation CODE
Independent AppraisaIs.
Mr.. Moore stated, however. that
house specializing in real estate mort
gage financing should be qualified
to make its own appraiSals, but such
appraisals should be substantiated by
valuations obtained from responsible
Independent appraisers" He explained
that this will act as an additional
assurance to the bond dealer and the
investing public that the valuations
are not excessive"
TOO much emphasis he added,
cannot be placed upon the impor-
tance Of determining the correct earn
ing power of a project. Appraisals
of rental income by competent, re-
sponsible outside appraisers are highly
desirable. 1t is from the net income
that the interest and amortization re-
quirements of a bond issue must
come.
Experience has demonstrated, how
ever, that capitalization Of earning
power alone is not altogether satisfac-
tory. Therefore, it is generally rec
ognized by experienced real estate
bond houses that the most reliable
and sound basis for an appraisal Of
new project is on the basis of fair
actual cost plus a reasonable profit
to the builder, backed up by indie
pendent appraisals as to the fair mar
ket value based on both cost and
income.
THE purpose which legislatures had
in view in passing securities laws and
creating socalled 'Blue-Sky' Commits
sions is the protection of the public
against fraud. When loans secured
oy mortgages were made directly by
the owner of the moneys loaned
there was no occasion for the regula
ton of mortgage loans. The lender
the property offered as security and
exercised his own judgment as to the
amount he saw fit to loan. With the
advent of the serial bond issue, the in
dividual bond buyer is not usually in
a position to exercise an independent
Judgment on the nature of the Sc
curity offered. He has to rely upon
the standing and reputation of the
party who has sponsored the issue and
offered to the public"