CH 4 - Valuation & Market Analysis

Question 1

What’s the purpose of an appraisal?

Answer 1

To estimate value

Question 2

Market Value

Answer 2

the most probable price a property will sell for, in an open market, arms-length transaction

Question 3

Market Price

Answer 3

the price obtained for a specific property in a specific transaction

Question 4

MAI

Answer 4

member of the Appraisal Institute

Question 5

USPAP

Answer 5

Uniform Standards of Professional Appraisal Practice

Question 6

Characteristics/Elements of Value

Answer 6

D emand
U tility
S carcity
T ransferability

Question 7

The most important thing to determine in an appraisal:

Answer 7

the highest and best use of the property

Question 8

Progression

Answer 8

smaller/less desirable homes will increase in value by having larger/more desirable homes in the area

Question 9

Regression

Answer 9

larger/more desirable homes will decrease in value by having smaller/less desirable homes in the area

Question 10

loans with a transaction value of less than _______ do not satisfy the definition of “federally related transaction”

Answer 10

$250,000

Question 11

name the three approaches to estimating value

Answer 11

1. Sales Comparison (most common)
2. Cost (of rebuilding)
3. Income (income producing properties)

Question 12

formula to find the capitalization rate?

Answer 12

Cap Rate = NOI / Value

Question 13

formula to find the value of a property, if cap rate and NOI are known?

Answer 13

Est. Value = NOI / Cap Rate

Question 14

With an NOI of $61,000, and a cap rate is 10%, what is the estimated value of a property?

Answer 14

$61,000 / 10% = $610,000

Question 15

Gross Rent Multiplier formula ?

Answer 15

GRM = Sales Price / Monthly Gross Income

Question 16

With a sales price of $100,000 and a monthly gross income of $900, what is the GRM?

Answer 16

$100,000 / $900 = 111

Question 17

Is NOI a monthly value or an annual value?

Answer 17

NOI is an annual value

Question 18

For a monthly NOI of $500, and a cap rate of 12%, what is the estimated value of the property?

Answer 18

$500 * 12 = $6,000

$6,000 / 0.12 = $50,000 (est value)

Question 19

Why is a GRM useful in estimating value?

Answer 19

If you know the GRM for a comparable property, you can find out the monthly rent for the subject property and multiply it by the GRM to get an estimated value.

Question 20

Does land depreciate?

Answer 20

No

Question 21

Define reconciliation

Answer 21

using all three approaches to value when estimating value

Question 22

poorly maintained properties in the neighborhood is an example of __________

Answer 22

external depreciation

Question 23

Which approach is described here?

value of the land + (cost to rebuild a building - depreciation) = value

Answer 23

Cost Approach to Value

Question 24

capitalization rate is used in which approach to value?

Answer 24

Income Approach to Value

Question 25

If the potential gross rental income from a property is $20,000, the vacancy rate is 5%, and the additional income from laundry is $700, what is the effective gross income?

Answer 25

$20,000 * 0.95 = $19,000

$19,000 + $700 = $19,700

Question 26

An appraiser is responsible for ___________.

Answer 26

estimating value

Question 27

A building is valued at $215,000 and contains 4 apartments which rent for $470/mo. Net operating income is 65% of gross rent. What is the cap rate?

Answer 27

($470 * 4 * 12) = $22,560 (gross annual)
$22,560 * 0.65 = $14,664 (NOI)
$14,664 / 215,000 = 6.8%

Question 28

Period of time over which an improvement to a property will remain useful for its original purpose is known as _________.

Answer 28

economic life

Question 29

During an appraisal, an appraiser estimates the cost of rebuilding the subject property so that it is identical to its current size and condition. This is what principle?

Answer 29

substitution

Question 30

An apartment building sold for $450,000, with monthly gross rent of $3,000. What’s the GRM?

Answer 30

$450,000 / $3,000 = 150