Appraisal

Question 1

Supply and demand

Answer 1

When demand exceeds supply, scarcity exists, values rise.
When supply exceeds demand, surplus exists, values decline.
When supply and demand are equal, the market is in balance, values stabilize.

Question 2

Utility

Answer 2

A property’s use in the marketplace contributes to the demand for it.

Question 3

Transferability

Answer 3

How readily or easily title or rights to real estate can be transferred affects the property’s value.

Question 4

Anticipation

Answer 4

The benefits a buyer expects to derive from a property over a holding period influence what the buyer is willing to pay for it.

Question 5

Substitution

Answer 5

A buyer will pay no more for a property than the buyer would have to pay for an equally desirable and available substitute property.

Question 6

Contribution

Answer 6

The value of an improvement is equal to the change in market value that the addition of the improvement causes.

Question 7

Change

Answer 7

Market conditions affect the benefits that can arise from the property.

Question 8

Highest and best use

Answer 8

A property achieves its maximum value when it is put to whichever use generates the greatest income and return. The highest and best use can be legally permissible, physically possible, financially feasible, and maximally productive.

Question 9

Conformity

Answer 9

A property’s maximal value is attained when its form and use are consistent with surrounding properties and uses.

Question 10

Progression and regression

Answer 10

The value of a property is influenced by the values of neighboring properties.

Question 11

Assemblage

Answer 11

Conjoining adjacent properties can create a combined value in excess of the values of the unassembled properties. This excess value is called plottage value.

Question 12

Subdivision

Answer 12

The division of a single property into smaller properties can result in a higher total value.

Question 13

Reproduction value

Answer 13

the value based on the cost of constructing a precise duplicate of the subject property’s improvements, assuming current construction costs.

Question 14

Replacement value

Answer 14

the value based on the cost of constructing a functional equivalent of the subject property’s improvements, assuming current construction costs.

Question 15

Salvage value

Answer 15

the nominal value of a property that has reached the end of its economic life; also, an estimate of the price at which a structure will sell if it is dismantled and moved.

Question 16

Assessed value

Answer 16

the value of a property as estimated by a taxing authority at the basis for ad valorem taxation.

Question 17

Appraisal process

Answer 17

1. Identify the purpose
2. Assimilate the relevant data
3. Assess the highest and best use
4. Eliminate the value of the land
5. Apply the three approaches to value
6. Reconcile the values from the approaches
7. Compile the report.

Question 18

Sales Comparison Approach

Answer 18

1. Identify comparable sales
2. Compare comps to the subject and make adjustments to the comparables
3. Weigh values indicated by adjusted comparables for the final value estimate of the subject

Question 19

Types of Cost Appraised

Answer 19

Reproduction - cost of making a precise replica
Replacement - cost of making a functional equivalent

Question 20

Steps in Cost Approach

Answer 20

1. Estimate land value
2. Estimate replacement cost of improvements
3. Estimate total depreciation
4. Subtract: (cost of improvements - depreciation) = depreciated improvements cost
5. Add land back in: (land value + depreciated improvement = value estimate of property

Question 21

Functional Obsolescence

Answer 21

outmoded physical or design features: curable or incurable

Question 22

Economic Obsolescence

Answer 22

loss of value due to adverse changes in surroundings: incurable

Question 23

Steps in Income Approach

Answer 23

1. Estimate potential gross income
2. Estimate effective gross income (total potential income - vacancy)
3. Estimate net operating income (NOI) (effective income - expenses)
4. Select and apply capitalization rate (NOI / cap rate)

Question 24

GRM

Answer 24

price/monthly rent

Question 25

Value [GRM]

Answer 25

GRM x monthly rent

Question 26

Comparative Market Analysis steps

Answer 26

1. Identify comparables sold, for sale properties, and expired listings
2. Compile comparison date for each comparable: price. sale date, location, age, lot size, site aspects, living area, bedrooms, etc.
3. Complete adjustments for differences; rules:
   a. Never adjust the subject
   b. Add value to the comparable if a feature is inferior to the subject
   c. Subtract value from the comp if a feature is superior to the subject
4. Derive total adjustments for each comparable
5. Reconcile all value-adjusted comps to the subject to identify a value estimate

Question 27

FIRREA

Answer 27

Financial Institution Reform, Recovery and Enforcement Act enacted in 1989 to regulate appraisal practices
requires that competent individuals whose professional conduct is properly supervised perform all appraisals used in federally related transactions
As of January 1, 1993, federally related appraisals must be performed only by state-certified appraisers
USPAP - Uniform Standards of Professional Appraisal Practice - competency standards established by the Appraiser Qualifications Board of the Appraisal Foundation

Question 28

USPAP

Answer 28

Uniform Standards of Professional Appraisal Practice
requires recognized appraisal methods
must exercise a defined level of due diligence
must properly report results
must make proper disclosures and assumptions