Appraisal

Question 1

Four economic characteristics of value

Answer 1

DUST
-Demand
-Utility
-Scarcity
-Transferability

Question 2

What is value?

Answer 2

Monetary present worth of goods, products or services in relationship to the perceived worth of future benefits arising from the ownership of real property.

Question 3

Monetary present worth of goods, products or services in relationship to the perceived worth of future benefits arising from the ownership of real property.

Answer 3

Value

Question 4

Situs

Answer 4

The location of a particular property and people’s preferences for particular locations.

Question 5

Market value

Answer 5

Most probable price a property will bring.
-Between strangers. “Arms length”
-Between ready, willing and able buyer who is not forced to buy
-and ready, willing and able seller who is not forced to sell
-Reasonable exposure on the market
-Does not include properties, buyers or sellers in distress

Question 6

Most probable price a property will bring.

Answer 6

Market value

Question 7

The location of a particular property and people’s preferences for particular locations.

Answer 7

Situs

Question 8

Market price

Answer 8

What the property actually sells for.

Question 9

Most probable price a property will bring.

Answer 9

Market value

Question 10

What the property actually sells for.

Answer 10

Market price

Question 11

Basic principles of economic value.

Answer 11

-Highest and Best Use
-Substitution
-Supply and Demand
-Conformity
-Regression and Progression
-Anticipation
-Increasing and Diminishing Returns
-Contribution
-Competition
-Change

Question 12

Highest and Best Use

Answer 12

The most profitable use to which the property can be adapted or the use that is most likely to be in demand in the reasonable near future. IE, changing a parking lot to an office building because that is what is expected to do best in the area.

Question 13

Substitution

Answer 13

The maximum value of a property tends to be set by the cost of purchasing another, equally desirable property. CMA.

Question 14

Supply and demand.

Answer 14

The value of a property increases if the supply of such a property decreases and the demand for it increases (or remains constant) and vice versa.

Question 15

Conformity

Answer 15

Values tend to be higher when other properties in the area are similar in style, quality, size, etc.

Question 16

Regression and Progression

Answer 16

Lower value properties will negatively affect higher value properties in the neighborhood, and vice versa.

Question 17

Anticipation

Answer 17

The expectation of future benefits increases value, and vice versa.
Example: Bringing casinos into Atlantic City drove up the area value. Bringing in a garbage dump usually decreases value.

Question 18

Increasing and Diminishing Returns

Answer 18

Improvements to the land and structures eventually reach a point at which they no longer have an effect on property values.
Example: adding a bathroom to a house that only has one usually increases value, but adding a bathroom to a house that already has three may not make any difference.

Question 19

Contribution

Answer 19

Value of improvements to a property is not what it costs, but what its addition contributes to the value of the whole.

Question 20

Competition

Answer 20

Profits attract competition, but excess profiles tend to attract ruinous competition.
Example, a successful retail store may cause investors to open similar stores in the area, resulting in less profit for all stores concerned.

Question 21

Change

Answer 21

Four stages of product life cycle.
1. Growth
2. Stability
3. Decline
4. Renewal

Question 22

Three approaches to value

Answer 22

-The Sales Comparison Approach or Market Data Approach (Comps)
-The Cost Approach (mostly used in special-purpose buildings like libraries or stadiums)
-Income Approach (based on future rights to income. IRV formula. I=RxV. 1 year of net income = cap rate x value)

Question 23

BPO

Answer 23

Broker price opinion. Done for lenders, not client, when a full appraisal is not needed.