Appraisal

Question 1

Comp sales approach

Answer 1

1-Find comps
2- Adjust them over time and based on certain characteristics to reflect the subject more accurately
3- Estimate market value

Question 2

Gross Income Multiplier (GIM) (And NIM)

Answer 2

Estimates relationship between immovable’s PGI and its sales price
Must use EGI
Sales price ÷ annual PGI, apply mean of value to subject’s annual PGI

NIM is same but uses NOI

Question 3

Mortgage/Equity Method

Answer 3

Estimate value of unit by capitalizing on NOI prior to financing, takes into account an imposed Debt-to-equity ratio

• Capitalization rate (k) is imposed by conditions
• Value = NOI/k
• k = (m x f) + (E x y)
  
  • m = Loan-to-value ratio
  • f = mortgage constant = (pmt * 12 months)/mortgage loan
  • E = equity-to-value ratio expressed as a %
  • y = required return on equity as %

When solving for f without loan amount, any loan amount can be used

Question 4

Cost approach

Answer 4

Used when comp. sales approach is not possible due to a lack of data
Can only be applied by a chartered appraiser

• Costs of reproduction
  
  • Cost of replacing a building with an identical one (recent construction for which materials still exist or a historical building)
• Replacement costs as new (RCN)
  
  • Cost of replacing a building with another with the same purpose
  • Not necessarily with the same materials as they may no longer exist

Question 5

Construction cost search

Answer 5

Comparative market analysis (comp. sales approach)
Compare with similar properties that were built and sold recently
Based on sq.ft.

(actual cost of recent build) ÷ sq.ft. = x
x*total sq.ft. of subject
Adjustments may be needed

Question 6

Quantity Survey Method

Answer 6

Most detailed, most complex, most time-consuming
Used by builders when bidding on projects
Calculate individual costs of all materials, evaluate labour costs, add MGMT fees and a reasonable profit

Question 7

Unit-in-place method

Answer 7

Calculate cost of units in place as they relate to parts of the building

Examples of units of measurement
- Linear wall price
- Wall price per sq.ft.
- Roof price per sq.ft.
- Flooring price per sq.ft.
- Excavation price per m^3
- Kitchen cabinetry price per linear foot
- Fixed price for each piece of equipment

Question 8

Main Steps in Cost approach

Answer 8

• Measuring value of land as though vacant, and for its highest and best use
• Estimate replacement cost of building and improvements as tough new
• Estimate overall depreciation
• Estimate depreciated value of building and improvements
• Establish market value

Question 9

Construction Cost Reference Manual

Answer 9

Relies on use of market-recognized construction cost indices

Question 10

Components of Value

Answer 10

• Supply and Demand
• Property’s perceived needs and utility
• Rarity
• Purchasing Power
• Transferability
• Environmental Factors

Question 11

Factors influencing the RE market

Answer 11

Economic
Social and Demographic
Political
Physical

Question 12

Law of supply and demand?

Answer 12

Supply ↑ price↓ and vice versa

Seller’s market 8 or less properties per buyer, balanced 8-10, buyer’s 10+

Question 13

Law of substitution

Answer 13

A cautious buyer will not pay more for a property than they would pay for another equally desirable, useful and productive property

Question 14

Law of highest and best use

Answer 14

Use of the property which is, at time of appraisal, most likely to produce best financial performance or services over a given period of time

Question 15

Principle of consistent use

Answer 15

Immovable cannot be appraised for two competing uses when it is transitioning to optimal use

In other words, a building and its land cannot be considered to have different uses (e.g. residential building on commercial land)

Question 16

Principle of conformity

Answer 16

Property’s value is more likely to be upheld if it conforms with neighbouring properties

Question 17

Principle of progression and regression

Answer 17

Regression: Value of a higher-quality property decreases due to its proximity to lower quality properties in same neighbourhood

Progression: inverse

Question 18

Principle of contribution

Answer 18

Presence or absence of an element which distinguishes subject immovable from comp. either increases or decreases value

Question 19

Principle of anticipation

Answer 19

Value depends on benefits that a buyer expects to derive from it

Question 20

Principle of surplus productivity

Answer 20

• Makes it possible to assess profitability of a plot of land
• Represents NOI after deducting all operating expenses and capital invested in improvements
• Residual income is attributable to land and assigned to it to establish value
• Supports residual income approach
• In the absence of recently sold comps, allows to assess NOI attributable to a building and NOI attributable to land

Question 21

Principle of competition

Answer 21

High net profit margin attracts large number of competitors, thus decimating above-normal profits

Question 22

Principle of balance

Answer 22

Value of property remains balanced when there is a proper ratio between similar services offered and demand of inhabitants served

Question 23

Principles of increasing and decreasing returns

Answer 23

Increasing prod. = increased returns. However, once prod. max is reached, no investment will lead to higher ROI (decreasing returns)

Question 24

Stages of the appraisal process

Answer 24

Defining the appraiser’s problem or mission

Collecting information and data

Using techniques (comp sales, cost, income)

Using techniques (comp sales, cost, income)

Conciliating techniques and statements with regard to value and price

Question 25

Criteria for comps

Answer 25

• Located in same sector
• Same age and style
• Similar sized areas (for both land and buildings)
• Sold recently
• Same type of configuration (# of beds, baths, etc)

Question 26

Methods to appraise a lot (site)

Answer 26

• Allocation method (can refer to comp sales, cost or both)
• Developer’s method (mainly cost method, but not exclusively)
• Net ROI method (income approach)
• Residual revenue method (income approach)
• Sales price (comp sales, but adjustments must be made based on a unit price depending on area, and not on the aggregate price)

Question 27

Factors to consider for land appraisal

Answer 27

• Measurement units
• Facade
• Depth
• Public services
• Shape
• Corner lot
• Improvements
• Economic obsolescence
• Location
• Other factors that may affect land value

Question 28

Reproduction vs replacement

Answer 28

Reproduction = replacing a building with an identical one

Replacement = replacing building with another with same purpose. Preferable for older buildings, or if same materials no longer exist

Question 29

Total Depreciation

Answer 29

Sum of all types of depreciation

Calculate three sequential depreciations in following order: physical, functional and economic
- Physical calculated on RCN
- Subtract from new cost to determine functional
- Repeat to obtain depreciated replacement cost as new (DRC)

Question 30

Appraisal report documents

Answer 30

• Copy of COL
• Necessary parts extracted from deed of sale to identify seller(s). Deed of sale kept in the brokerage file
• Seller’s declaration
• Information on the subject, provided by the seller(s)
• Notes you have taken while visiting the property
• Photos of the subject (you will be able to use them later if you are entrusted with the listing
• Description sheets of comps
• Info on the market
• Info on neighbourhood of the property to be assessed
• Table of comps
• Table of contributive values
• Table of adjustments
• Justification for the items selected to determine contributive values
• Spreadsheets and calculation tables supporting application of selected methods
• Appraisal report linked to the estimated market value
• Any other required or useful docs