AZ Real Estate - Appraisal B5 Flashcards
Value is like…?
Worth
Who creates value?
People
Present worth of future benefits is?
Value
Market price is…?
Amount of $ given in exchange for property.
The value exchange.
Types of appraisal licenses are?
- Licensed Residential less than $1 mil
- Certified Residential more than $1 mil
- Certified General any type of app
Two types of appraisers?
- Staff - on staff at co or bank
2. Fee - independent
For maximum value, what must be present?
The 4 kinds or elements of value.
Appraisers calculate value using the
4 characteristics of value.
They are?
Hint: DUST
- Demand
- Utility
- Scarcity
- Transferability
Value of an asset (how much sold for) at end of it’s economic life is?
Salvage or residual value
Insured value, Assessed value, Mortgage value and Salvage/Residual value are?
The 4 kinds or elements of value.
They must be present to gain max value.
Unit in place, quantity survey, cubic and sq ft used in what type of app method?
Cost approach
2 categories of value are?
- Objective
2. Subjective
Principal factors of adjustment in a market data aka comparative analysis?
- Date of sale/age of property
- Location
- Physical features
- Terms of sale
Increase in value created by joining smaller land parcels together is…?
Plottage
An increase in value having nothing to do with owner is?
Unearned increment
What app method do you use to app a single fam house?
Market data
Physical deterioration is…?
Deferred maintenance
3 Appraisal Approaches are…?
- Market Data aka comparative analysis
- Cost Approach aka summation
- Income Approach aka capitalization
If app uses all 3 app methods to estimate value, what method does she use to estimate value?
Reconciliation aka correlation
What app approach est value based on reproduction or replacement cost minus depreciation and plus (separate) value of land?
Cost approach
Appraisal approach that compares property w/ recent sales of similar properties? Listings set ceiling, sales set floor.
Market data
How is improved land appraised for cost approach method?
Market data (comps).
New construction, custom homes, special use or service property (church) are appraised using what approach?
Cost approach
Cost of updating property using current materials and standards is aka?
Replacement cost
Cost of materials to produce exact replica is aka?
Reproduction cost
Types of depreciation include?
- Physical
- Functional
(functional obsolescence) - Economic
(social obsolescence)
Loss of value for any reason and the diff btw construction cost and present value is?
Depreciation
Loss of value from causes inside property that make it hard or expensive to adapt it to modern standards, is?
Functional depreciation aka functional obsolescence.
Curable, Incurable.
Loss of value from wear and tear is?
Physical depreciation.
it is wear and tear. Incurable, curable.
Depreciation term that says how long a property can be profitably utilized, is?
Economic life
Loss of value aka depreciation from causes outside of property (noise pollution or factory) is?
Economic aka social obsolescence. Not curable.
Depreciation term that means subjective age or how old it looks, is?
Effective age
Depreciation term that means chronological or numerical age, is?
Actual age
What appraisal approach assumes that net income from property determines value?
Income approach aka capitalization.
Appraisal method used for commercial properties and when dealing w/ investors is?
Income approach aka capitalization.
The rate of return made on capital investments is?
CAP Rate
What is net operating income aka NOI?
Total income minus vacancies/bad debts = Adjusted or Effective Gross Income minus Operating Expenses of property taxes, insurance, utils, payroll EXCLUDING depreciation and loans = NOI
Income Approach divides CAP Rate into NOI for what purpose?
To determine estimated capitalized value of property. This % used in income approach.
What does CAP rate measure?
CAP Rate measures risk involved in an investment.
Factors influencing CAP Rate are?
Operating conditions of investment, avail of funds, risk and interest rates
Higher the CAP Rate, the higher the?
Risk
CAP Rate x Price =
NOI
NOI / Price =
CAP Rate
The higher the risk of investment, the higher the?
CAP Rate
Of the 2 categories of value - objective and subjective, which one is more important?
Subjective
ie amenities like pools, carpet, fresh paint, fireplace
Objective value is created by object itself.
Higher the value the lower the?
CAP Rate
Higher the CAP Rate the lower the?
Value
Special influences on value are?
- Physical - curb appeal
- Social - snob appeal
- Economic - job growth
- Government - tax amt, light rail
- Directional growth - is it growth area
- Location - most important
Appraisers know that listings establish the ________ of the market and prices establish the _______.
Ceiling
Floor
Selling price of real estate is based on what value?
Market value
Adjusted gross income is?
Total rents less vacancies and credit losses.
What is not a special force influencing property value?
Original cost
First objective of an appraiser is to?
Define the problem and his approach to it.
Period during which building contributes to value of land is?
It’s economic life
Appraisal licensing is required by?
FIRREA
NOI / CAP Rate gives us
Value
Why is cost of neighborhood houses important to price of your house?
Substitution - Tendency of consumers to substitute lower priced products for similar higher priced ones
Highest and best use is….?
The most profitable use of a property.
A property should not be improved beyond that of its neighbors if maximum profits are to be made when it is sold. This is
Conformity
“Worth of a lesser object increases when it is among quality objects” is definition of?
Progression
When a property increases in value but the owner did nothing to cause the increase, this is called:
Unearned increment
5 bedroom house w/ 1 bath is
Functional obsolescence
Which appraisal approach considers depreciation?
Cost Approach
Land that does not always cover the cost of operation is?
Marginal land
The value one pays today for future rental income is?
Capitalization value
What does an appraiser look for first?
Highest and best use of land
An example of functional depreciation is?
Outdated interior
What does GRM find?
A multiple of gross rents to determine price
“Value” given in exchange for a property is?
Market price
Capitalization rates consider
Net income
Economic depreciation is?
Incurable depreciation
In the income approach of appraising the most important figure is?
Net income
The difference btw replacement cost and present value is?
Depreciation
After gathering all appraisal data, the appraiser?
Reconciles and correlates
Physical obsolescence is a problem with?
Property deterioration
If cap rate goes up value goes?
down
How do you get cap rate?
Income divided by Value
To get effective gross income we subtract what from scheduled income?
Vacancy and loss of credit
When we want to convert income to value we use the?
Cap Rate
If agent leases bdlg w/ 20 yr leases and no escalation clause, how would this affect value?
Value would decrease
House in poor neighborhood located near factory is?
Economic obsolescence
You build a home twice as expensive as this around you. Your property realizes?
Economic obsolescence
What is not an operating expense in the cost method?
Principal and interest payments
Annual gross multiplier is calculated by?
Dividing price paid by gross annual income
When appraising rental property we don’t care about?
Tax rate
Weighing and analyzing of property using all 3 methods of appraising (market data, cost, income).
Reconciliation aka correlation
Gross Income
- Bad Debt and Vacancies
Equals?
Effective Gross Income
Effective Gross Income - Operating Expenses =
NOI
Non allowable expenses in income approach are?
DIDI
Depreciation, Income tax, Debt service, capital improvements
Assessed Value
Value through eyes of tax assessor
Insured value
Value through eyes of insurance co.
They do not value land only improvements.
Loan value?
Value perceived by lender
Characteristics of value are?
Demand
Utility
Scarcity
Transferability
Special influences on value or what appraiser looks at?
Physical - curb appeal Social - snob appeal Economic - job growth Governmental - light rail, amt taxes Directional growth - is it growth area Location - most imp
Highest and best use is?
Use of property that brings the greatest net return.
Substitution
A property is not worth more than an equally desirable repacement
Supply and demand
Demand increases value
Anticipation
Value created by future expected benefits.
Conformity
Similar size, arch, amenities.
Conformity increases value.
Conformity
Adding something to add value.
What makes a good comp?
Recent close and similar.
Market data approach is always used on?
Land and when you have similar properties in neighborhood.
Cost Approach
Estimate of value based on cost of replacement or reproduction of building less depreciation plus value of land (market data approach used on land).
When is cost approach used?
New construction
Custom home
Special use or service property
When comparables unavailable
3 Types of Depreciation
Physical - wear tear. Curable/Internal
Functional - loss of value from things inside property limiting utility
Economic - loss of value from causes outside property. Always Incurable.
What does the gross rent multiplier indicate?
A factors of rents to price
