Evening star., 1936-11-21
APPRAISAL POINTS
GIVEN BY BABCOCK
f. n. A. Section Chief Is
Speaker at Meeting in
New Orleans.
Special Dispatch to The star.

Special Dispatch to The Star.
NEW ORLEANS, November. al
Outlining a new approach to the i'm
portant problem of real estate ap-
praisal, Frederick M. Babcock Of
Washington, chief Of the Underwrit-
ing Section of F. H. A.. addressing g
dinner meeting of the American In
stitute of Real Estate Appraisers OF
the National Association OF Real
Estate Boards in convention here, EN-
phasized these points:
First. accurate valuation, impor-
tant, necessary, and desirable as it is,
Is by no means a complete solution OF
the appraisal problem. Second. the
problems for which valuations are re-
uuired can be solved by analytical
means, usually by the careful deter
mination of a number Of significant
ratios. Third, the risk rating system
applicable to the examination OF
mortgages is a good example Of the
new approach to solution OF the ap-
praisal problem"
Babcock said in part: "The deter.
nnination Of one or more defined and
qualified estimates of value does not,
by itself, solve the appraisal problem
which is usually presented. There are
other basically important factors
which require technical analysis and
formal examination before the ap-
praisal problem is solved. There must
be facts and opinions expressed in
connection with matters which have
nothing to do with the estimate OF
value. We have been inclined to
center our efforts on the valuation
and to virtually ignore the other
factors.
Ratios Are Significant.
1.-THE other factors are usually sig
nificant ratios. They are relation
ships which when expressed as frac-
tions or ratios. round out the valua-
ton and describe its qualitative char
scteristics and, in addition, 60 far
beyond the appraisal itself and pro-
vide further bases for the making OF
decisions on the matters which orig
tnally made appraisal necessary.
Perhaps a few illustrations will
help make clear Just what I mean.
First, consider the appraisal problem
presented when q group wish to de-
termine whether or not a proposed
new building project is a sound deal.
They will determine an estimate of the
value of the project on completion.
They will also determine the total costs
to be met up to the time of completion.
Then they must determine the ratio
between the cost and the value. That
ratio indicates whether the deal is
sound. If the cost exceeds the value,
the project Is unsound. II the value
exceeds the cost, the project is sound.
Furthermore, the extent to which the
value exceeds the cost Is a measure
Of the degree to which the project has
strength and merit. OF course, the
presence of positive improved value in
large amounts cannot exist except in
those instances where there Is a
monopolistic situation which prevents
competitive leveling Of values.
Other Illustrations.
take another common case-the
problem usually presented when pub
lie authority condemns part Of a pri-
vate property for public use. The ex-
tent of the damage is indicated by be-
fore and other appraisals and the
ratio between the two appraisals is an
important factor in deciding the case.
Then we have another illustration
IN the field Of mortgage lending. We
cannot rely solely upon the ratio of
the principal amount Of the loan to the
capital value of the property. We wish
to know other ratios, among which is
the ratio which the debt service on
the contemplated loan bears to the
probable future net earning capacity
Of the property. Personally, consider
this ratio equally as significant as the
loan-value ratio. AS you will readily
observe, the ratio does not even involve
the value of the property and aptly IL
illustrates the contention that the ap-
praisal problem is not completely
solved by appraisal alone"