Appraisal Flashcards
List the Steps in the Appraisal Process
- Define the problem
- Assimilate relevant data
- Asses highest and best use
- Estimate the value of the land
- Apply the three approaches to estimating value
6 Reconcile the values from the approaches - Compile the report
Steps involved in the Cost Approach
- Estimate value of the land as vacant
- Determine either replacement or reproduction costs of improvements
- Deduct all accrued depreciation from the replacement cost
- Add the estimated land value back to the depreciated replacement or reproduction cost
What are the 3 types of appraisal reports
- Letter: Short business letter, all essential data but does not include supporting data.
- Short or Form: Contains all basics of a regular appraisal, used primarily for homes.
- Narrative: Most comprehensive, used for commercial and investors.
Highest and best use
The possible use of a property that would produce the greatest net income and thereby develop the highest value.
The maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property is a value principle called…
SUBSTITUTION
The law of supply and demand
The value of a property increases when the supply is short and decreases when the supply is too much.
Conformity is a value principle that refers to..
The more a property or its components are in harmony with the surrounding properties the greater the contributory value. (the more they are alike, the more they retain value)
Regression and Progression
The value of the better quality property is affected adversely by the presence of the lesser quality property and vice versa.
Property can increase or decrease in value in expectation of something in the future such as appreciation or rezoning is what value principle…
ANTICITPATION
The value of any component of a property is what it gives to the value of the whole or what its absence detracts from the whole is what value principle
CONTRIBUTION
Assemblage is…
The combining of two or more adjoining lots into one larger tract to increase their total value.
The increased value resulting from the combining of adjacent lots into one larger lot is called…
PLOTTAGE
When one business attracts another business of similar type; together they may make more money than they would have singularly
COMPETITION
Change in real estate describes…
Real property is constantly changing - expanded, stabilizing, declining or rebirth.
Three methods to determining cost
- Square foot cost: Cost per square foot of a recently built comparable is multiplied by the square feet of the subject.
- Unit in place: Replacement cost of a structure is estimated based on the construction cost per unit of measure of individual building components.
- Quantity survey: Quantity and quality of all materials and the labor are estimated on a unit cost basis (very time consuming and detail oriented; most accurate method but usually used in appraising historical properties).
Differs from actual age by such factors as depreciation and quality of maintenance. If a person maintains a building keeping it in good repair, the_______is reduced.
EFFECTIVE AGE
__________is the period which an improvement has value in excess of its salvage life. Also called service life or useful life.
ECONOMIC LIFE
Four ground rules for appraisers in determining if a transaction occurred in an ‘open market’ are….
- payment must be in cash or its equivalent
- transaction is “arms length” meaning no relationship between buyer and seller
- property must be marketed for a reasonable time in an open free flowing market
- both buyer and seller must be well informed consumers
The 3 steps in the sales comparison approach are..
- identify comparables
- compare comparables to subject and make adjustments
- reconcile values of adjusted comparables for final value estimate of subject
The cost approach is primarily used for….
properties with limited comparable data or for properties where the original cost is particularly applicable, such as brand new homes.
The loss in value due to wear and tear of the structure is called…
PHYSICAL DETERIORATION
A loss of value of an improvement due to functional inadequacies often caused by age or poor design is…
FUNCTIONAL OBSOLESCENCE
Curable deterioration or obsolescence is distinguished from incurable as…
a function of the costs to remediate the subject item in relation to the value the remediation added to the property.
______ is a loss of value resulting from extraneous factors that exist outside the property itself caused by environmental, social, or economic forces over which an owner has little control.
ECONOMIC OBSOLESCENCE - generally considered incurable
The steps in the income approach are…(5)
- ESTIMATE ANNUAL POTENTIAL GROSS INCOME
- LESS VACANCIES = EFFECTIVE GROSS INCOME
- ADD NON RENTAL INCOME = ANNUAL GROSS INCOME
- LESS ANNUAL OPERATING EXPENSES = NET OPERATING INCOME
- DIVIDE NOI BY CAP RATE = VALUE
There are no_______taxes on real property
FEDERAL
With relation to real property, the federal gov’t does however tax…
income derived from real property and gains realized on the sale of real property
The major tax district in most areas is the…
SCHOOL DISTRICT
General property taxes are based on the ________ of the property.
ASSESSED VALUE
The total of the appraised or assessed values of all real property within an area minus exempt properties is that area’s….
TAX BASE
The tax rate or______determines how much of a tax levy the tax base will receive.
MILLAGE RATE
The tax rate for each taxing entity is calculated by….
dividing the amount of revenue required by the tax base
_______ is when states or counties exempt a portion of the assessed value of the principal residence from property taxation and a property owner qualifies by meeting these two criteria.
HOMESTEAD EXEMPTION
- is head of a family
- resides on the property for a required length of time
Taxable value is the….
assessed value subject to taxation after all exemptions have been taken out.
A mill is….
one-thousandth of a dollar……a tax rate of one mill means the owner pays one dollar for every thousand dollars of assessed value.
It is common practice to round up fractions of a hundred of the assessed value.
…
If a taxing entity initiates an assessment, the assessment creates an__________. If property owners initiate the assessment, the assessment creates a_________.
involuntary tax lien, voluntary tax lien
Special assessments usually are paid in________. However, taxpayers generally have the option of paying________.
installments over a number of years;
in one lump sum otherwise accelerating payment
The gross rent multiplier and gross income multiplier methods of valuation are abbreviated forms of valuation using the income approach, but without…
complications of property expenses, reserves, depreciation and debt service.
- value / monthly rent =
- GRM x monthly rent =
- value / GRM =
- gross rent multiplier (GRM)
- value
- monthly rent
Private land use is controlled by the….
grantor (seller, builder) of the deed.
The grantor, with reference to private land use, creates__________ which limit the use of the property.
deed restrictions or restrictive covenants (they are encumbrances on the property)
LIMITING RESTRICTIONS state….
things you can never do (no fences, etc)
AFFIRMATIVE RESTRICTIONS state….
things you must abide by (set back requirements, min square footage, etc)
Where there is a problem between one neighbor and another over restrictions, the neighbor seeking help must…
go to the courts rather than the police.
The court issues an_______ to prevent neighboring lot owners from violating the recorded restrictions.
INJUNCTION
____________ may restrict an owner’s use more severely than a zoning ordinance.
Deed restrictions
Deed restrictions are recorded where?
With the deed or on the deed itself and are not the same type of ownership as fee simple or life estate but rather rules that govern the property.
Under the __________, the US is empowered to control land for the benefit of all citizens.
14 Amendment
The rights to make laws to control local property are called….
ENABLING ACTS
Planning, zoning, codes that regulate building construction, subdivision regulations and environmental protection legislation are examples of….
POLICE POWER
The _________ is both a statement of policies, and a presentation of how it will be implemented once a local government has adopted it.
MASTER PLAN
Zoning laws are enacted in the exercise of police power and are upheld as long as they may reasonably….
protect public health, safety, morals, and general welfare of an area.
_______ controls density and avoids overcrowding, such as restrictions on setback, building height and percentage of open area, as its primary purpose.
BULK ZONING
_______ requires that buildings conform to certain types of architecture.
AESTHETIC ZONING
A term generally used to describe the positioning of a structure on a lot so that one side rests directly on the lot’s boundary line.
ZERO LOT LINE
This is a relatively modern concept in housing which produces a high density of housing units, while maximizing the use of open space.
PLANNED UNIT DEVELOPMENT (PUD)
Zoning ordinances must not violate the rights of individuals and property owners and must pass these tests. They must…..(5 things)
- be exercised in a reasonable manner
- be clear and specific
- be free from discrimination
- promote public health and safety
- apply to all property in a similar manner
Area set between properties being used for different purposes…
BUFFER ZONES
An improvement that does not comply with the zoning ordinances because it was constructed prior to the adoption of the zoning laws, and its use is one that clearly differs from current zoning.
NONCONFORMING USE; legal non-conforming in this case
A _______ may be sought to provide deviation from an ordinance so long as it is before the construction or reconstruction takes place.
VARIANCE
__________ is the reclassification of one piece of property in an area for a specific purpose.
SPOT ZONING; also called contract zoning
A property owner is granted this for a property that is deemed to be in the public interest contrary to the zoning that exists.
CONDITIONAL USE PERMIT
The purpose of building permits is to…
apply minimum standards of construction for new buildings. They also apply to major additions to old construction.
Lead based paint hazards are addressed in the sale and leasing of homes and apartments constructed prior to ….
1978
A_________accurately locates and identifies the boundaries of the subject parcel to a degree acceptable by courts of law in the state where the property is located.
legal description
The general criterion for a legal description is that…
it alone provides sufficient data for a surveyor to locate the parcel
A legal description is required for..(4 things)
public recording,
creating a valid deed of conveyance or lease,
completing mortgage documents,
executing and recording other legal documents
___________is used to describe properties in residential, commercial, and industrial subdivisions. Under this system, tracts of land are subdivided into lots. The entire group of lots comprise the subdivision.
Recorded plat method or lot and block
In a large subdivision, lots may be grouped together into ______ for ease of reference
BLOCKS
The description of a recorded plat property first presents the property’s…
lot number or letter, then the block identifier and the subdivision name.
A description starts at a designated place on a parcel called a Point of Beginning (POB). The description then describes the perimeter of the tract by reference to linear measurements and directions.
METES AND BOUNDS SYSTEM…….must begin and end at the point of befinning
This system is based on sets of intersecting lines.
Rectangular survey or government survey method
Principal Meridians run….
north and south
Base lines run
east and west
Township lines run…
east and west parallel with the base line and six miles apart.
Range lines run….
north and south like principal meridians and are spaced six miles apart
A township is a…
36 square mile area formed by the intersection of a township and range lines.
1 mile = how many feet
5280
1 square yard =
9 square feet
1 cubic yard =
27 cubic feet
1 square mile =
640 acres = 1 township secction
1 acre =
43,560 square feet
area of a trapezoid =
average base length x height
