Appraisal

Question 1

Appraisal

Answer 1

an unbiased estimate or opinion of value based on supportable evidence and approved methods. Fees charged for appraisal services are usually based upon the time and effort needed to complete the appraisal as well as what the competitive market will bear. The lender will go by this, and will normally require one.

Question 2

Purpose of Appraisals

Answer 2

loan purposes, establish market value in order to sell, exchange or purchase, tax purpose, condemnation proceedings, personal representatives of estates, estimate fair market rents, court cases

Question 3

Four Essential Elements of Market Value DUST

Answer 3

Demand, Utility, Scarcity, Transferability

Question 4

Demand

Answer 4

the desire to acquire property combined with the economic power to do so

Question 5

Utility

Answer 5

the ability of the property to satisfy peoples wants, needs and desires

Question 6

Scarcity

Answer 6

be relatively scarce, demand greater than supply

Question 7

Transferability

Answer 7

ability to transfer ownership from one person to another

Question 8

Kinds of value

Answer 8

market or appraised, book, salvage, residual, replacement, insured, assessed, mortgage, depreciated, condemnation

Question 9

Market Value

Answer 9

the most probably price that a property should bring in a fair sale, given that the buyer and seller are each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus

Question 10

Market Value vs Market Price

Answer 10

Market value - appraisers estimate of value, where as market price is the actual selling price

Question 11

Market Value vs Cost

Answer 11

Cost is something that happens in the past. Two houses my cost the same to build, but because of location the price may differ.

Question 12

Four Great Forces Affecting Value (PEGS)

Answer 12

Physical forces - climate, natural resources, terrain, location, size, shape ; Economic - interest rates, employment, income levels ; Government/political forces- zoning, building codes, police and fire protection, school system, rent control ; Social forces - income, age, marital status, prestige, Location (opinion)

Question 13

Substitution

Answer 13

person will pay no more for a piece of property than for an equally desirable substitute

Question 14

Contribution

Answer 14

the value of an improvement depends on how much it contributes to value by its presence or detracts by its absence. (a garage adds value)

Question 15

Conformity

Answer 15

for maximum value, property should reasonably inform to surrounding properties (style, design, size)

Question 16

Anticipiation

Answer 16

expectation of future benefits that the property will yield.

Question 17

Supply and Demand

Answer 17

as supply decreases, demand will usually remain the same or increase.

Question 18

Highest and Best Use

Answer 18

the most profitable single use to which a property may be put, or the use that is most likely to be in demand in the near future. Must be legal use, physically possible, adaptable, and feasible

Question 19

Competition

Answer 19

Substantial profits tend to breed competition. Increased Competition may result in les profit in the long term.

Question 20

Change

Answer 20

neither physical nor economic conditions remain the same subject to natural phenomenon ; change of market demands

Question 21

Increasing and Diminishing returns

Answer 21

returns are increasing as long as money spent on improvements products an increase in income. Returns decrease where improvements may not produce an increase in value or income.

Question 22

Regression

Answer 22

between dissimilar properties the worth of the better quality property if adversely affected by the presence of a lesser quality property.

Question 23

Progression

Answer 23

between dissimilar properties the worth of the lesser quality property is favorably affected by the presence of a better quality property.

Question 24

Assemblage and Plottage

Answer 24

assemblage is the process of joining several continuous parcels of property together to form one larger parcel. The increase in value by assemblage is known as plottage

Question 25

Three approaches to Value

Answer 25

1. Sales Comparison Approach

Question 26

Sales Comparison Approach

Answer 26

The estimate of market value is based on the analysis of recently sold properties similar to the subject property. It is mainly used to estimate and indicate value for single-family residences. 3-5 comparable usually provide a sufficient basis for estimate the value.

Question 27

Steps in competitive market analysis

Answer 27

1. Delineate the market area (what market are similar to the one which includes the subject property) 2. Locate Comparable Properties (sold recently within 6 months to a year) 3. Adjust Sales Prices (of at least 3 comparable)

Question 28

Cost Approach

Answer 28

based on the principal of substitution. It states that acquiring an equally desirable and valuable substitute property set the maximum value of property. Used primarily to value unique properties. (churches)

Question 29

Reproduction Costs

Answer 29

the cost of to build the property just as it was (always higher)

Question 30

Replacement Costs

Answer 30

the cost of building the property with todays materials

Question 31

Steps to Cost Approach

Answer 31

1. estimate the value of the land site 2. estimate the current cost of construction the buildings and site improvements 3. deduct total accrued depreciation.

Question 32

3 Types of Depreciation

Answer 32

Physical Deterioration , Functional Obsolescence, External Obsolescence

Question 33

Physical Deterioration

Answer 33

loss in value to to normal wear and tear. Can be Curable - economically feasible or does it cost most to cute than it would to increase value ; incurable - repairs would not contribute to comparable value of the building

Question 34

Functional Obsolescence

Answer 34

a loss in value because the property no longer performs the function as well as it originally could. Technology causes functional obsolescence.

Question 35

External Obsolescence

Answer 35

loss in value due to conditions beyond the control of the property owner. Usually caused by factors outside of the subject property such as a bad location, environmental, social or economic features.

Question 36

Depreciation

Answer 36

loss in value due to any cause. It begins to accrue (increase naturally) in every structure or building from the day it was built. Accrued depreciation is often estimated by the straight line method that assumes the depreciation occurs at a steady rate over the estimated economic life of the structure

Question 37

3 Methods to Estimate Cost

Answer 37

Quantity Survey Method, Unit-In-Place, Square Foot Method (Comparative)

Question 38

Quantitive Survey Method

Answer 38

Most difficult and time consuming procedure of estimating a buildings cost. Involves details breakdown of everything that goes into the building. It is the most accurate, but very expensive specific and time consuming.

Question 39

Unit-In-Place

Answer 39

second most reliable method. The appraiser estimates the installed cost of each building component. It is specific, time consuming and expensive for each building component breakdown (plumbing, electric, etc.)

Question 40

Square foot method

Answer 40

Cost per square foot of a recently built structure is multiplied by the number of square feet in the subject building. It is the least accurate, but most common and most efficient.

Question 41

Income Approach

Answer 41

based on the present worth of future income. It assumes income will, to a large extent, control the value. IT is used primarily for income producing property.

Question 42

Capitalization Formula

Answer 42

I/R=V. Converts future net income to market value(v). R is the estimated capitalization rate. I is the annual net income

Question 43

Steps of Income Approach

Answer 43

Estimate the potential annual gross income (based on market studies), Deduct for vacancy and rent loss (based on experience) “effective gross income”, Estimate the capitalization Rate (the rate of return an investor will demand for his investment.

Question 44

GRM (Gross Rent Multiplier) or GIM (Gross Income Multiplier)

Answer 44

substitutes for the income approach in single-family homes or duplexes not used as a primary source of income. Sales Price/Gross Income - Gross Income Multiplier

Question 45

Reconciliation

Answer 45

Apply the 3 approaches to value. All 3 may not be relevant, and the appraiser would have to explain the reason for omitting an approach.

Question 46

Broker Price Opinion

Answer 46

the estimated value of a property as determined by a real estate broker or other qualified individual or firm. It is based on the characteristics of the property being considered.

Question 47

FIRREA

Answer 47

Financial institutions Reform, Recovery and Enforcement Act. Intended to upgrade the professionalism and competency of appraisers so federally related transactions must be performed by licensed or certified appraisers.

Question 48

USPAP Standards

Answer 48

uniform standards of professional appraisal practice - 10 standards that are revised and updated periodically by the Appraisal foundation typically once every 2 years.

Question 49

Certificate of Reasonable Value

Answer 49

a form indicating the appraised value of a property being financed with a VA loan

Question 50

Economic Life

Answer 50

The number of years during which an improvement will add value to the land