4 - Value Practical Application Flashcards
Comparables
The house(s) you’re comparing the subject to
Subject
The house you are selling
Cost / Summation Approach
The Age-Life or Straight-Line method to calculate the dollar amount of a property’s depreciation.
Finding value by how much it is to reproduce.
Adding the land and the replication of the building.
Selecting Comparables
Recent: Within 3 months
Similar: Architecture, size, build
Sold in Similar Market Conditions: 1 mile
Underwriter
Makes the final decision for a loan
Square Foot Method
Measure the outside… Residential Standard.
Cubic feet for Commercial/ Warehouses
Unit in Place Method
Adding the different pieces together: Foundation + HVAC + Bathrooms + ETC.
Quantity Survey Method
How many bricks?
How many tiles?
How many shingles?
FOR BUILDERS
Depreciation: Physical Deterioration
CURABLE
Normal wear n tear.
Depreciation: Functional Obsolescence
CURABLE
Outdated design, architecture, appliances
Depreciation: Economic Obsolescence
INCURABLE
Wal-Mart in the Backyard
Foreclosures, taxes, schools… Outside things.
Capitalization Rate
The rate of return a property will produce on the owner’s investment
Gross Rent Multiplier (GRM) / Gross income multiplier
Figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property’s value; usually used for single-family res. homes
Capitalization Approach
Huge Building Rent Calculations
Does selling a house 6 years ago have an effect on an estimate?
NO EFFECT AT ALL.
What comes first in the capitalization approach?
Determining potential gross income
In a CMA, a comparable house sells for $50k less than listed due to divorce. Is this a good comparable house to use?
NO!
Urgency sales don’t act as good comparables.
Capitalization / Income Method
Appraising for rentals for Single family res. and Multi-Fam.
I use the Market Date, Cost Approach, and Capitalization Method to estimate a property’s market value… what should I do next?
Reconcile the values using each of the 3 methods to establish an estimated market value.
Primary concern in GRM or GIM to arrive at a valuation for the property:
A property’s SALE PRICE and its RENTS.
Most complete narrative reports
NARRATIVE REPORT.
Appraise a 10 y/o single-family res. neighborhood home… What method?
Sales Comparison / Market Data Method
Market Value vs. Market Price
Estimated by an appraiser who uses recent market prices as determined by buyers and sellers.
