Appraisals Con't Flashcards
Conformity
property is at its highest value when it conforms with and fits into its surroundings.
Competition
This principle holds that when several businesses of a similar type are close to one another, together they may make more money than they would have individually.
Contribution
This is what the market recognizes as the change in value an improvement makes to a property, rather than what that improvement actually cost.
Diminishing Return
This condition is a result of continuing to add improvements to a property when those improvements will have no effect on increasing the value of the property.
Progression and Regression
This principle holds that a property is affected by the surrounding properties. The value of the “smallest house on the block” will tend to increase if the other homes on the street have more value – progression. On the other hand, the value of the “largest home on the block” may decrease if the other homes on the street are much lower in value – regression
Substitutions
According to this principle, a buyer will not pay more for a home than what he or she would pay for another home that is equally attractive and available.
Supply and Demand
How many properties are available in an area
Property prices
Number of prospective buyers
Price buyers are willing to pay
Market Value
the market value of a property is the highest price a buyer is willing to pay and the lowest price the seller will accept,
Market Price
is an amount a particular purchaser agrees to pay and a particular seller agrees to accept under the circumstances surrounding the transactions, in other words, the actual sales price.
Direct Cost
Direct costs are also called hard costs. This includes the cost of labor and materials.
Indirect Costs
These are the costs that support a given project. They include any or all of the following:
Administration costs Appraisal fees Architectural and engineering fees Attorneys' fees Filing fees
Sales Comparison Approach
based on the principle of substitution – which says that a buyer will not pay more for the subject property than he or she would pay for a property that is similar in characteristics and amenities.
Most Reliable for Single Family Homes
Sales Comparison Adjustments
Date of Sale, Location, Physical Characteristics, Transactional Characteristics, Sales Condition
Cost Approach
most reliable for properties that were built recently, since the appraiser can get access to the actual costs of the development and construction.
Cost Approach Steps
Estimate Land Value
Estimate cost of improvements
Estimate Depreciation
Income Approach
(also called the income capitalization approach) to estimate the value of properties that produce income, usually from rent paid on leases.
Income Approach Steps
Estimate potential gross income
Estimate effective gross income
Estimate the net operating income
Select and apply capitalization rate
The sales comparison approach is thought to be the most reliable appraisal approach for what kind of property?
The sales comparison approach is thought to be the most reliable for appraisals of single-family homes.
What’s the difference between reproduction cost and replacement cost?
Reproduction cost is the cost at today’s prices of producing an exact duplicate of the current building, including its improvements and its flaws. Replacement cost is the construction cost at today’s prices of producing a similar or equivalent structure.
The income approach is based on which two principles of value?
Anticipation and Substitution
GRM Gross Rent Multiplier
Sales Price ÷ Gross Rent = Gross Rent Multiplier
GIM Gross Income Multiplier
Sales Price ÷ Gross Annual Income = Gross Income Multiplier
USPAP
set of standards, guidelines and provisions for the appraisal industry. It resulted from the cooperation of nine national appraisal organizations in 1985.
For what types of property would an appraiser use a gross rent multiplier?
Properties such as single-family homes and duplexes that could produce income, but are not primarily income-producing properties.
What are the five levels of real property appraisal classification?
Appraiser Trainee
Provisional Licensed Real Estate Appraiser
Licensed Real Estate Appraiser
Certified Residential Real Estate Appraiser
Certified General Real Estate Appraiser
