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National License > Chapter 10 - Appraisal > Flashcards

Chapter 10 - Appraisal Flashcards

1
Q

What is an appraisal

A

An estimate (opinion) of value
Based on info from marketplace
Cost or price is not a value

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2
Q

Appraisers base fee on

A

Time, effort, and expertise to finish an assignment

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3
Q

T/F - Lenders only loan on appraised value

A

True

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4
Q

What is market value

A

The true value of real estate- the most probable price it could sell for under normal conditiosn

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5
Q

What is required for market value to be legit?

A

Both buyer and seller must be knowledgeable
Neither buyer or seller can have abnormal pressure to act (like a divorce)
Property must be reasonable exposed to market place
Price agreed upon must be for terms of cash

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6
Q

Four Economic Characteristics of Value

**********

A

DUST*******
Demand - is it desirable and in demand by people
Utility - is it useful
Scarcity - amount of land is fixed
Transferability - Can you transfer it for sale

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7
Q

Principles of VALUE

abbreviated PV

A 
Substitution
Highest & Best Use 
Conformity 
Supply & Demand 
Anticipation 
Competition
Plottage Increment (assemblage plottage)
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8
Q

Cap Rate =

A

annual net income (ANI)

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9
Q

PV - Substitution

A

Buyer will pay no more than what they would for equal property of the like

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10
Q

PV - Highest & Best Use

A

Property’s greatest use for return
Can change over time
(bungalow home on busy road is now store front)

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11
Q

PV - Conformity

A

Property has best value if it fits into neighborhood.
Progression = smallest house in subdivision (will gain value)
Regression = largest house in subdivision (will lose value)

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12
Q

PV - supply and demand

A

Supply goes down, demand goes up (price goes up)

Supply goes up, demand goes down (price goes down)

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13
Q

PV - Anticipation

A

Expectation of what the future value of a property would be (can cause value to go up or down)

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14
Q

PV - Competition

A

If there is too much or too little competition, it will have an effect on value

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15
Q

PV - Plottage Increment (assemblage plottage)

A

Putting several properties together increasing overall value.
Monopoly

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16
Q

Can property depreciate

Whats another word for depreciation

A

Yes - it can by two ways

Obsolecense

17
Q

Depreciate for tax purposes

A

Allows investors to deduct % of investment property’s value each year to reduce taxes.
Only the improvements depreciate - never the land

18
Q

Actual Depreciation (loss in value) from 3 sources or categories

A

Physical Obsolescence:
Functional Obsolescence:
External (Economic) Obsolesence:

19
Q

Physical Obsolescence

A

wear and tear on the physical

lack of maitenance

20
Q

Functional Obsolescence

A

a use problem that can’t be fixed
Outdated
(small stair case in old two story house)

21
Q

External (economic) Obsolescence

A

Loss in value from outside the property’s boundaries

-busy road now cuts through your property

22
Q

Age & Life of Property

2 types of age

A 
Chronological Age 
Effective Age (the age assigned because of it's functionality)
23
Q

Age & Life of Property

2 types of life

A

Economic Life: how long will it be useful

Physical Life: How long will it exist

24
Q

Square footage of property

A

width x length

Exterior measurements only (doesn’t include garage etc.)

25
Q

Site analysis

A

Analysis of the lot itself (slope, View, sun, trees etc)

26
Q

What are the 3 approaches to value used by appraisers

A 
Sales Comparison Approach (market data approach) 
Cost Approach (summation approach) 
Income Approach (capitalization approach)
27
Q

Sales Comparison Approach -

A

Market Data Approach
PV - SUBSTITUTION
Compare property sold within six months & 1 mile
If comp is superior - subtract from yours

28
Q

Cost Approach

A

Summation Approach

  • Estimate current replacement cost
  • Subtract for depreciation
  • Add current land value
29
Q

2 types of cost approches

A

Replacement Cost

Reproduction cost

30
Q

Income Approach

A

Capitalization Approach
Used in commercial properties that are income producing
(based on rate of return)

1) add up all the rents
2) deduct vacancy or rent loss = effective gross income
3) subtract operating expenses = net income
4) determine Cap Rate (rate of return a property produces as investment)
5) Determine value, net income divided by cap rate

31
Q

Relationship between cap rate & value

A

inverse

32
Q

What are the first and last steps to the appraisal process being done?

A

1) state the problem

2) Reconciliation - find the final value estimate

National License (17 decks)

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