Chapter 1: Market Fundamentals, Characteristics, and Definitions Flashcards
“A group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises.”
Neighborhood
“The geographic region from which a majority of demand comes and in which the majority of competition is located. Depending on the market, a market area may be further subdivided into components such as primary, secondary, and tertiary market areas, or the competitive market area may be distinguished from the general market area.
Market Area
“A neighborhood characterized by homogeneous land use, e.g., apartment, commercial, industrial, agricultural.”
District
A study of the market as a whole and the investigation of conditions of a component of that market as reflected for a specific property type
Market Analysis
"A place where goods and services are exchanged" is the definition of a: retail district market neighborhood store
Market
"The separation and identification of the parts of the whole" is part of the process of: highest and best use aggregation using the Internet analysis
Analysis
When an appraiser is analyzing the subject property’s market area, which question is LEAST likely to be asked?
Where is the property located?
What defines the boundaries of the property’s neighborhood?
Who owns the property?
What are the trends for this neighborhood?
Who owns the property?
Today, if an appraiser has an “oddball” appraisal assignment and there is no local data, the appraiser can:
use the Internet to research data or contact other appraisers for data
make up the data, and use the Internet to make it seem more realistic
use Internet data to create a smaller submarket within the local market
withdraw from the assignment and use the Internet to find another appraiser to do it
Use the internet to research data or contact other appraisers for data
When an appraiser is analyzing the subject property’s market area, which question is MOST likely to be asked?
Why is the subject property being sold?
What defines the boundaries of the subject property’s neighborhood?
Who owns the subject property?
What is the subject property’s condition?
What defined the boundaries of the subject property’s neighborhood?
a) Projected income to be received;
b) Using the property as a tax shelter;
c) Probable appreciation of the asset; and
d) Use of the property for a personal business.
These are the benefits of what?
From income producing properties
Which principle is often associated with the income approach?
Anticipation
The principle of anticipation is also related to the principles of:
Supply and demand
Competition
Change
The principle of balance is closely related to the following principles:
Four agents of production
Conformity
Contribution
Surplus Productivity
The principle of change is related to the following principles:
Anticipation
Supply and Demand
Inclining and declining periods
The principle of competition relates to the following principles:
Anticipation
Supply and demand
Opportunity Cost
The principle of conformity is related to the following principles:
Balance and regression
The principle of contribution is related to the following principles:
Balance
Four agents of production
Substitiution
The principle of externalities is related to the following principles:
Inclining and declining periods
Progression and regression
Supply and demand
The four agents or production are:
Capital (Buildings and Equipment)
Coordination (Management)
Labor (Wages)
Land
The principle of the Four Agents of Production is related to the following principles:
Balance
Contribution
Opportunity Cost
Surplus Productivity
The value of a single-family home is decreased when a large industrial plant is constructed directly across the street. What economic principle does this best demonstrate? Balance Contribution Externalities Anticipation
Externalities
Perceived benefits from the ownership of income-producing property would include all of the following EXCEPT: income to be received appreciation physical depreciation tax shelter
Physical Depreciation
With regard to the four agents of production, which is the last agent to be satisfied? Capital Land Labor Coordination
Land
The fact that a property's value may be different next week than it is today demonstrates what economic principle? Change Balance Anticipation Competition
Change
When supply and demand are in balance in a market, this produces: Anticipation Appreciation Equlibrium Depreciation
Equilibrium
People tend to purchase homes in areas with amenities and facilities, and where they feel insulated from adverse property conditions. This is an example of the principle of: Conformity Substitution Change Competition
Conformity
A property owner constructs a six-car garage at a cost of $80,000. It only adds $40,000 in value to the property. What economic principle does this best demonstrate? Balance Change Contribution Opportunity Cost
Contribution
The principle of contribution is most closely associated with: the Income Approach the Sales Comparison Approach the Cost vs income Approach the principle of Opportunity Cost
the Sales Comparison Approach
Finish the sentence: Profit encourages \_\_\_\_\_\_\_\_\_\_\_. profit declining markets copycats competition
Competition
Appraiser Anne wants to convert a property's anticipated income into an indication of value. Which approach to value is best suited for this purpose? Anticipation Approach Income Approach Sales Comparison Approach Cost Approach
Income Approach
Four stages of the life cycle:
Growth, Stability, Decline, Revitalization
Integration and Disintegration are sometimes referred to as _____ and ____ periods
Inclining, declining
Opportunity costs relates to
the advantages of an alternate investments
The consistent use theory recognizes:
a property’s componenets
The value of a fair quality home will be enhanced if it is located in a neighborhood of all good quality homes. What economic principle does this demonstrate? Substitution Progression Anticipation Regression
Progression
If there are not enough homes available in a market to satisfy demand, this is known as \_\_\_\_\_\_\_\_\_\_. a buyer's market seller's market equilibrium contribution
Seller’s Market
The principle of surplus productivity states that after paying the costs of the first three agents of production, any residual income is attributed to \_\_\_\_\_\_\_\_. capital coordination labor land
Land
What is another name for the principle of inclining and declining periods? ups and downs Externalities Anticipation Integration and Disintegration
Integration and Disintegration
Which of these is an example of the principle of progression?
Average quality home in average quality neighborhood
A manufacturing facility located in a residential neighborhood
A good quality home in a neighborhood of average quality homes
Fair quality home in a neighborhood of good quality homes
Fair Quality home in a neighborhood of good quality homes
When analyzing the life cycle for a neighborhood, which stage is characterized by a strong demand and rising values? Externalities Decline Growth Stability
Growth
If there are not enough homes available in a market to satisfy demand, what will happen to home prices?
they will increase
they will decrease
they will stay the same
They will increase
When analyzing the life cycle for a neighborhood, what problem is often faced by appraisers?
the entire life cycle happens quickly, usually over a period of a few months
the growth cycle may have passed before they realize it
a neighborhood may be in decline and still experience high demand and rapid price appreciation
some clients believe analysis of a neighborhood life cycle is discriminatory, and do not permit appraisers to do it
The growth cycle may have passed before they realize it
An informed buyer is considering two properties, but will only purchase one of them. They are substantially equivalent, and each has an annual net operating income of $18,000. Property A has a listing price of $199,000, while Property B is listed at $189,000. Which property is the investor MOST likely to purchase?
Property A
Property B
There is not enough information to determine
Property B
The principle of surplus productivity is associated with which approach to value? Cost Approach Income Approach Sales Comparison Approach none of the above
Income Approach
he most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interests; (3) a reasonable time is allowed for exposure to the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.
An annoying long ass definition of Market Value
This value is the amount of money that the financial institution is willing to lend the borrower to purchase a particular property. Usually this value is a percentage of the appraised value or market value.
Loan Value
This value is also known as “ad valorem” value. This is the type of value that is used to calculate the property owner’s real estate taxes.
Assessed Value
This is the value of a particular property to a specific investor. Investors look at a variety of data in making the decision of whether to invest in a property.
Investment Value
The value of the property as it is presently being used. This value does not consider the highest and best use of the property or the market value as of the effective date of the assignment.
Value in use
This type of value recognizes the cost to replace the improvements and generally does not consider the value of the site.
Insurance Value
Equates to market value. This type of value signifies the property’s worth in an open and competitive market, either in exchange for money or other goods.
Value in Exchange
This is actually an accounting term. This type of value is associated with the depreciated value of the improvements for accounting and income tax purposes.
Book Value
When there is no more remaining life for the improvement, it will have been fully depreciated, and the only remaining value will be in the
Land
This value is an operating business with an indefinite future life. For some established businesses, the real estate assets are an essential part of the business.
Going Concern Value
This type of value identifies a tenant’s interest in a lease. When the tenant’s right to use the property is greater than the rent being paid for the actual use of the property, there is a
Leasehold Value
The price a property will sell for, if required to be sold very quickly, to convert the asset into money. This is the appraiser’s opinion of what discount would be required to dispose of the property in a very short time frame.
Liquidation Value
How is the type of value used in an appraisal assignment determined?
all appraisals are for market value
the client must supply the value definition to the appraiser
it does not matter what type of value is used
the appraiser identifies the type of value, based on the intended use of the appraisal
The appraiser identifies the type of value, based on the intended use of the appraisal
What type of value recognizes the cost to replace the improvements but does not include the land value? investment value value in use market value insurance value
Insurance Value
Most real property appraisal assignments are intended to develop an opinion of: value in use liquidation value market value assessed value
Market Value
The market value of a property is $255,000 and the loan-to-value ratio is 70%. What is the loan value for this property? $150,500 $188,500 $178,500 $255,000
$178,500
255,000 x .70
What type of value is generally considered equivalent to market value? book value value in exchange insurance value loan value
value in exchange
The amount of money that a financial institution is willing to lend the borrower on a particular property is the: loan value market value liquidation value assessed value
loan value
What type of value is based on a specific investor's needs and desires? market value assessed value loan value investment value
investment value
What type of value includes an operating business with both tangible and intangible assets? going concern value book value insurance value market value
going concern value
What type of value is based on the property's current use? assessed value value in use market value investment value
value in use
What does USPAP say about market value?
appraisers are cautioned to use the same market value definition in every assignment
appraisers are cautioned to identify the exact definition of market value and its authority
only the market value definition specified in USPAP should be used
the client must supply the market value definition to the appraiser
appraisers are cautioned to identify the exact definition of market value and its authority
“The Bundle of Rights” or property interests are commonly considered to include:
(SLUGER) The right to Sell the property The right to Lease or rent the property The right to Use or demolish the property The right to Give it away The right to Enter or leave the property The right to Refuse any of these rights.
Forces that create value
Scarcity
Desire
Effective Purchasing Power
Utility
Four large general forces that effect value
Social
Environmental
Economic
Governmental
Characteristics of land
Immobility
Indestructability
Heterogeneity
Economic Characteristics of land:
Type of improvements
Permanence of improvements and capital
Location preferences
Scarcity
Gov’t restrictions on land
taxation
police power
eminent domain
escheat
known as sole owner. This type of ownership indicates that one person owns and holds title to the property.
Sole Proprieter
A legal vehicle for partial ownership interests in real estate in which independently owned properties are conveyed to a trustee; may be used to effect a profitable assemblage or in some cases to facilitate the assigning of property as collateral for a loan
Land Trust
A corporation or trust that combines the capital of many investors to acquire or provide financing for all forms of real property.
REIT
Real Estate Investment Trust
This type of ownership is not recognized by all states. It is primarily a form of ownership used for estate planning purposes. The ownership of the property is transferred into a living trust, with the property owner assuming the role of trustee.
Individual Trusts
If a party has all their ownership rights intact, what type of ownership is this? Leasehold Fee simple Leased fee Going concern
Fee Simple
Which statement is TRUE about real property value?
Value is not created; it is inherent.
Appraisers create value.
Market participants create value.
Real property is worth more than personal property.
Market Participants create value
When a property is leased, what is the owner's interest called? individual trust condominium leasehold leased fee
leased fee
With regard to the four forces that create value, what is meant by utility?
a property must have usefulness in order to have value
availability of gas, electric, water, and sewer services
a property must be able to grow crops
someone must be using the property at the time of the appraisal
a property must have usefulness in order to have value
If a property has significant liens or clouds on the title, and the owner is unable to sell it because of these issues, the property can be said to lack \_\_\_\_\_\_\_\_\_\_\_. scarcity utility transferability property rights
transferability
What is meant by “escheat”?
the government illegally raises taxes
the government can claim a property upon the death of the owner if there is no will and no heirs
the government can take a property for the public good with just compensation
the government can push aside the rightful heirs and claim a property when the owner dies
the government can claim a property upon the death of the owner if there is no will and no heirs
One of the characteristics of land is heterogeneity. What does this mean? each parcel of land is the same each piece of land is unique land cannot be moved to another location land cannot be destroyed
each piece of land is unique
A change in local employment and income levels would be considered a(n) \_\_\_\_\_\_\_\_\_\_\_ force affecting values. environmental economic social governmental
economic
Governmental restrictions on use of land include: eminent domain taxation escheat all of these
all of these
Three people own a property together. When one person dies, his undivided share of property ownership goes to the other two owners. What type of ownership is this? ownership in severalty joint tenants tenants by the entirety none of the above
Joint tenants (right to survivorship)
The most probable price that a property should bring in an open and competitive market is part of the: principle of competition principle of anticipation definition of market value definition of market analysis
the definition of market value
The market value of a property is $200,000 and the loan-to-value ratio is 75%. What is the loan value for this property? $150,000 $50,000 $160,000 $175,000
150,000
200,000x .75
Why does insurance value typically not include the value for the land?
land typically cannot be destroyed
most of the property value is in the improvements
this is a tradition that dates back to England in the 1800’s
land is worthless without improvements
land typically cannot be destroyed