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Real Estate Appraisal > Appraisal Exam 3 > Flashcards

Appraisal Exam 3 Flashcards

1
Q

how many square feet in an acre

A

43,560 sqft

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2
Q

reconciliation

A

The appraiser makes a final determination of the single best supported value in his opinion

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3
Q

cost approach use of reconciliation

A
  • Special purpose commercial properties (churches, banks, carwashes, oil changes)
  • New residential homes
  • Property insurance
  • Don’t use it past 3 years
  • Houses don’t go over 12 months
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4
Q

sales comparison approach use of reconciliation

A

o Land
o Residential Homes (Any Age)
o Commercial Properties in an Active Market
o Sold recently

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5
Q

income approach use of reconciliation

A

o Commercial income producing properties (Hotels, Storage, etc.)
o Apartments
o Rental homes
o RENT!

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6
Q

process of reconciliation (4 factors)

A

o Definition of value sought - (i.e. market, investment, assessed)
o Inherent strengths and weaknesses of each approach
o Amount and reliability of the data collected in each approach – Accuracy and Quantity of Evidence
o Relevance of each approach to the subject property – Appropriateness

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7
Q

correlation

A

The process by which the appraiser gives weights to each approach to derive the final reconciliation
- appraiser does not have to show percentages in the report

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8
Q

Maplewood Apartments – TX

A

needs renovations and remodeling, sell

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9
Q

Midtown Mall – MA

A

EDR needs to be higher than the cap rate, sell

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10
Q

which property dominates the portfolio

A

Mall dominates the portfolio because it costs a lot, so whatever it makes is what we make

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11
Q

Wilshire Ground Leases – LA

A

Hold, Because your making 14% with long term leases

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12
Q

Alpha Center – MA

A

Good location and low vacancy, Diversifies the portfolio, hold

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13
Q

Pathmark Supermarket – NJ

A

Sell, Some of the most powerful real estate because they bring a lot of people to the area

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14
Q

cause of distressed property

A

o Oversupplied Market: properties can’t sell because there are too many of them
o Poor Design
o Poor Location
o Lack of Maintenance
o Poor Financial Decisions

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15
Q

why does distressed property still have high market value

A

someone else could afford it

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16
Q

problems that occur with distressed property

A
  • Low Occupancy
  • High Operating Costs
  • Low Rent Levels
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17
Q

which of the problems that occur with distressed property are curable

A

Lack of maintenance, poor financial decisions, and poor design can be fixed

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18
Q

How can operating expenses vary with a distressed property?

A

They are typically higher, high maintenance and advertising

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19
Q

How would distressed properties due to poor location be shown in the income approach?

A

Lower market rent

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20
Q

What about poor financial decisions on the income capitalization approach?

A

Nothing, doesn’t affect the appraisal at all

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21
Q

What is a key to having an effective cost approach with a distressed property?

A

Depreciation

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22
Q

Would you consider the cost approach to be a reliable indicator of value when a property is distressed in most cases?

A

No

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23
Q

Cost Approach if distressed

A

Value of Improvements (New) - Accrued Depreciation (Typically Larger) + Value of Site + “As-Is” Value of Site Improvements = Value Estimate

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24
Q

In distressed markets, are comparable plentiful or scarce?

A

Scarce, nothing is selling because everyone is scared

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25
Q

With a distressed property, are comparable sales always scarce?

A

No because you can have a distressed property in good time

26
Q

REO appraisal – What? Why?

A
  • Real estate owned
  • After the property is foreclosed
  • Have to go in and estimate repairs for the bank
27
Q

Drive-by appraisal – What? Why?

A
  • Before a property is foreclosed
  • Taking pictures from the street
28
Q

“As-is” Value

A

Value is it is sitting in that condition

29
Q

“As-repaired” Value

A

Value as it is fixed, value once the repairs are done

30
Q

o 3 Listings – why?
o 3 interior photos (minimum) – why?

A
  • Tells you current prices in the neighborhood, how much does a good condition property sell for
  • Inside of the property might need repairs
31
Q

Final Value of an REO “Distressed” Property:

A

Distressed Purchase Price + Repair Costs + Holding Cost + Sales Cost + Profit Demand = Market Value

32
Q

So after estimating REO Distressed property, what is the “key” to providing a quality estimate to the lender with the REO property?

A

Repairs and depreciation, the estimation of both

33
Q

Valuation of Proposed Projects: These are done “subject to” completion per plans and specifications. What is this?

A

Appraisal is only good if they meet specs

34
Q

“As-is” Value – Can we appraise anything “as-is” with regards to new construction?

A

Appraisal the land, value the site

35
Q

What is “existing construction” appraisals?

A
  • A remodel, renovation, or addition
  • Are subject to as well
36
Q

Are “existing construction” appraisals “subject to” or “as-is”?

A

Subject to

37
Q

Construction Loans: These loans often have lower “LTVs” (i.e. 75% as compared to 80%) Why?

A

More risky

38
Q

Construction loans are often for 6 months up to 2 years and appraisers may do 2 appraisals. Why?

A
  • Best money
  • Before and after its built so they can sell the loan to investors
39
Q

Construction loans are made in draws, so occasionally appraisers do inspections during construction. What is a construction draw?

A
  • They are done piece meal
  • Don’t give you all the money because you have no collateral, just dirt
40
Q

New Construction Appraising Cost Approach:
o Would physical depreciation be included in the estimate?
o Should functional or external depreciation be included?

A
  • no
  • Sometimes external
41
Q

New Construction Sales Comparison Approach:

A
  • Nothing changes as we are appraising the building as if it were already built.
  • Less risk
42
Q

Why would “quality of construction” be more key than “condition” in an effective proposed construction appraisal?

A
  • You know the condition will be good because it’s a new property
  • The quality changes so much when being built in terms of material, etc.
43
Q

Why might final values on new construction be harder to attain than on existing homes? (not all time periods or locations)

A

New is more expensive

44
Q

Residential Appraising: USDA

A

Rural poor people

45
Q

Residential Appraising: VA

A

back veterans

46
Q

Residential Appraising: FHA

A

new homeowners

47
Q

What are the 3 “S”s that need to be observed by Government Loan Appraisers?

A
  • Safety
  • Soundness
  • Sanitary
48
Q

Can a Government Loan to be rejected outright?

A

Yes

49
Q

What is ethical

A

In general, it is “moral right and wrong” or “duty and obligation”

50
Q

What is the difference in ethical versus legal?

A

The law is required, ethics is because we want to be good people

51
Q

What can overstand appraisals do to banks and lenders

A

They may lend to much money and foreclose

52
Q

What can overstated appraisals do to condemnation and divorce cases

A

One side gets too much money

53
Q

What happens to neighborhoods or city blocks with failed real estate projects

A

Blighted, look nasty and someone has to fix up the whole neighborhood

54
Q

Ethics rule (3 parts)

A
  • Conduct
  • Management
  • Confidentiality
55
Q

Ethics rule: conduct

A
  • Misleading conduct – lack of verification of collected data
  • Fraudulent conduct – outright untruths
  • Hypothetical assumptions – speculation without stating the appraisal is
    “subject to”
56
Q

ethics rule: management

A
  • Performing appraisals and collecting fees based on predetermined values
  • Multiple job roles in transactions (cant be both appraisal and buyer)
  • Exaggerated advertising
  • Kickbacks (referral fees)
57
Q

ethics rule: confidentiality

A
  • Appraiser-client relationship – this is similar to doctors, lawyers, accountants, etc
  • Who can we provide appraisals for:
     Client/lender
     Client assigns (who they transfer the loans too, insurance
    companies, etc)
     Government
     The court
58
Q

Record keeping

A
  • Must keep files for 5 years
  • 2 more years id the appraisal is needed for a legal case (i.e. bankruptcy, divorce,
    condemnation, etc)
59
Q

Appraisal review

A
  • This is the process by which the work of an appraiser is evaluated or audited
  • It can be done in several ways:
    o Bank
    o Peer reviews
    o Supervisory review where you have an apprentice
60
Q

When conducting appraisal review

A

o Completeness of the report
o The adequacy and relevance of data in the report
o The appropriateness of the appraisal methods
o The appropriateness of the appraisal conclusion
- The reviewers main job is not to give an opinion of market value, but this can be
requested.

Real Estate Appraisal (11 decks)

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