Appraisal Flashcards
supply
the amount of properties for sale within the market at a given price during a given time period
demand
the number of people willing and able to accept the available goods at any given price during a given time period
supply and demand
value of a property increases if the supply of such property decreases and the demand increase or stays the same
value
the monetary worth of the future benefits arising from the ownership of real estate property
value is specific to a marketplace
Five attributes of land
- finite in supply
- physically immobile
- durable
- useful
- each parcel has unique characteristics
improvement value
the difference between the total purchase price of the commercial real estate property and the land value, plus the cost of buildings and other improvements added
situs
a real estate property’s location, for legal purposes
Economic characteristics of Real estate
- demand: being needed
- utility: capable of satisfying human needs/desires
- scarcity: being only available in limited supply
- transferability: having ownership rights easily transferred
market value
a price a ready, willing, and able buyer who is not forced to buy will pay a seller who is not forced to sell after property has had exposure on the market
appraisal
an estimate/opinion of value based on supportable evidence and approved methods
appraiser
an independent person trained to provide an unbiased estimate of value
market price
what a property actually sells for
ideally the same as market value, but not always
market value vs cost
market value can be affected by factors external to the house
cost is price to build the property
highest and best use
most profitable use to which the property can be adapted
amenity
tangible/intangible benefit to the property
substitution
maximum value of a property tends to be set by the cost of purchasing another
conformity
neighborhoods often have houses of similar sizes and house families of similar economic status
can stabilize value in a neighborhood, making appraisal easier
sales comparison approach
a real estate appraisal method that compares one property to comparables or other recently sold properties in the area with similar characteristics
subject property
property under appraisal
comparables
similar properties compared to a subject property to determine value
Principal factors for which adjustments must be made
- date of sale
- location
- physical features
- terms and conditions of sale
cost approach
most helpful for appraisal of special purpose buildings (church, schools, public buildings)
valuation method that estimates the price a buyer should pay for a piece of property is equal the cost to build an equivalent building
reproduction cost
dollar amount required to construct an exact duplicate of the subjects building at current prices
helps in cost approach appraisal
replacement cost
construction cost at current prices of a building that is not necessarily an exact duplicate
used more often than reproduction cost, useful for cost approach
four methods used to determine reproduction/replacement cost
- square foot method
- unit-in-place method
- quantity-survey method
- index method
depreciation
a loss in value due to any cause or any condition that adversely affects the value of an improvement to a real property
physical deterioration
normal wear and tear
functional obsolescence
physical or design features that are no longer considered desirable
external obsolescence
depreciation caused by factors not on the subject property
often incurable
income approach
income derived from a property controls the value of that property
used in income-producing properties
capitalization rate
ratio between the annual rental income produced by a real estate asset to its current market value
gross rent multiplier
relates the sales price of a property to its rent income (income is monthly for residential, yearly for commercial)
Sales price/rental income = gross rent multiplier
sales price = GRM x rental income
rental income = GRM/sales price
reconciliation
art of analyzing and effectively weighing the findings from different approaches used
before-and-after method
the appraiser determines the value of your property before the taking and then determines the value of the property after the taking
used when property is taken under eminent domain
examples of when appraisals may be required
- estate purposes
2.divorce proceedings
3.financing
4.taxation
5.relocation
6.condemnation
7.insurance
8.damage loss
9.feasibility
two classes of data for appraisals
- general data
- specific data
general data
affect values on national, state/regional, or neighborhood levels
specific data
details about the property being appraised (the subject property) and comparable properties that have been sold or leased in the local market
certified general appraiser
the highest level of licensing. The ability to appraise all types of property – residential or commercial – with no value limit.
the real estate market is an _____
inefficient market, relatively slow to adjust changes in supply and demand
value vs price vs cost
value: estimated based on analysis
price: what it sells for
cost: may be relevant only to new construction
regression
less expensive neighboring houses hold down value of a better property
progression
worth of a lesser property increases if its neighbors are more valuable
anticipation
principle that holds that the expectation of future benefits creates value
law of increasing returns
the value an additional feature adds to a property, will bring a larger return in value than the money spent on making the improvement
law of decreasing returns
when additional improvements do not produce a proportionate increase in income/value
contribution
addition that increases value
absence which decreases value
competition
profits attract competition
excess profits attract ruinous competition
change
natural disasters, societal changes, political changes all can contribute to the value of a property, and should be taken into account by appraiser
square-foot method
method to determine reproduction/replacement cost where cost pre square foot
unit-in-place method
replacement cost estimated based on constriction cost per unit
apprentice/trainee
90 hours of appraisal study and successful examination
licensed as a residential appraiser
150 hours of appraisal study, 2000 hours of experience in at least one year
certification as a residential appraiser
associate degree, 200 hours appraisal training, 2500 hours experience at least two years
certified general appraiser
bachelors degree, 300 hours appraisal study, 3000 hours experience in at least 2.5 years
