Appraisal Flashcards
Unit 16, Page 303
Four economic characteristics of value
DUST
-Demand
-Utility
-Scarcity
-Transferability
What is value?
Monetary present worth of goods, products or services in relationship to the perceived worth of future benefits arising from the ownership of real property.
Monetary present worth of goods, products or services in relationship to the perceived worth of future benefits arising from the ownership of real property.
Value
Situs
The location of a particular property and people’s preferences for particular locations.
Market value
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
Most probable price a property will bring.
Market value
The location of a particular property and people’s preferences for particular locations.
Situs
Market price
What the property actually sells for.
Most probable price a property will bring.
Market value
What the property actually sells for.
Market price
Basic principles of economic value.
-Highest and Best Use
-Substitution
-Supply and Demand
-Conformity
-Regression and Progression
-Anticipation
-Increasing and Diminishing Returns
-Contribution
-Competition
-Change
Highest and Best Use
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.
Substitution
The maximum value of a property tends to be set by the cost of purchasing another, equally desirable property. CMA.
Supply and demand.
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.
Conformity
Values tend to be higher when other properties in the area are similar in style, quality, size, etc.
Regression and Progression
Lower value properties will negatively affect higher value properties in the neighborhood, and vice versa.
Anticipation
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.
Increasing and Diminishing Returns
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.
Contribution
Value of improvements to a property is not what it costs, but what its addition contributes to the value of the whole.
Competition
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.
Change
Four stages of product life cycle.
1. Growth
2. Stability
3. Decline
4. Renewal
Three approaches to value
-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)
BPO
Broker price opinion. Done for lenders, not client, when a full appraisal is not needed.
External obsolescence
Loss of value due to factors beyond the property boundaries
