2 Quiz 2 Flashcards
What is a Market-Defining Story?
A framework used in real estate market research to determine the highest and best use of a property.
What are the five key questions in a Market-Defining Story?
- What is the product? 2. Who is the customer? 3. Where is the customer? 4. What does the customer care about? 5. Who are the competitors?
Why is market segmentation important in real estate?
It helps identify different customer needs and preferences to better match properties to the right market.
What factors affect real estate demand?
Location, housing style, size, financing availability, amenities, and market conditions.
Why is location crucial in real estate valuation?
It determines accessibility, desirability, and overall market value.
What is analysis paralysis in market research?
Overanalyzing data to the point where no decision is made due to information overload.
What is the purpose of market research in real estate?
To determine the best use of a property and ensure it aligns with customer demand and market conditions.
What is the Sales Comparison Approach?
A valuation method that compares a property to similar properties that have recently sold, making adjustments for differences.
What are the three primary real estate valuation methods?
Sales Comparison Approach, Cost Approach, Income Approach.
How is the Cost Approach used in real estate valuation?
It estimates the cost of rebuilding a property minus depreciation to determine its value.
What are the three types of accrued depreciation?
- Physical deterioration 2. Functional obsolescence 3. External obsolescence.
Why is the Income Approach used in real estate valuation?
It estimates value based on the income a property can generate, commonly used for commercial properties.
What is Net Operating Income (NOI) and how is it calculated?
NOI = Effective Gross Income (EGI) - Operating Expenses - Capital Expenditures (CAPX).
What is a capitalization rate (cap rate) and how is it calculated?
Cap Rate = NOI / Property Value. It measures the expected return on a property.
Why are appraisals required in real estate?
To determine fair market value for purchases, loans, renovations, demolitions, and legal cases.
What are the three types of real estate value concepts?
- Market Value (probable selling price) 2. Investment Value (value to a specific investor) 3. Transaction Price (actual sale price).
Who uses real estate appraisals?
Buyers, sellers, lenders, courts, investors, and corporations.
What are the challenges in estimating real estate market value?
No two properties are identical, markets are localized, and transactions occur infrequently.
What is functional obsolescence in real estate?
A reduction in property value due to outdated design or features that do not meet current market demands.
What is external obsolescence?
A loss in property value due to factors outside the property, such as economic decline or increased crime in the area.
What is a Uniform Appraisal Report?
A standardized form used by appraisers to document property valuation.
Why is replacement cost different from market value?
Replacement cost is the cost to rebuild the property, while market value reflects current supply, demand, and buyer willingness to pay.
What are the main steps in the real estate appraisal process?
- Identify the problem 2. Determine scope of work 3. Collect data 4. Perform analysis 5. Determine land value 6. Apply valuation methods 7. Reconcile values 8. Report findings.
