Chapter 10 - Valuation Process and Pricing Properties Flashcards
Appraisal
Opinion of value of property as of specified date, supported by objective data. Only done by licensed appraisers.
Assessed value
Taxation purposes, not necessarily market value.
Comparative Market Analysis (CMA)
Prepared for seller as their home goes on market. Includes:
1) recently closed sales, within last 90 days
2) those currently on market (competition)
3) recently expired listings
“Days on Market” (DOM) - how was the pricing?
Cost
How much it costs to build
Cost Approach
Appraisal method. Works best with new construction or one-of-a-kind properties. Factors in the costs of building the home - hard costs like materials, labor, and land, as well as soft costs like architecture, legal, and permits and subtracts depreciation.
Depreciation
The loss in value to property for any reason
Direct Cost
Land Materials Labor Equipment Permits Utilities Contractor's profit Construction Site Security
Evaluation
Study of the nature, quality, or utility of certain property interests in which a value estimate is not necessarily required.
External Obsolescence
Type of depreciation - something outside the property makes it less desirable. EX: rise in neighborhood crime rate, building of a large retail center across the street, etc.
Functional Obsolescence
Type of depreciation - building becomes less desirable because of something inherent in design or structure itself. EX: outdated design, home that has been over-improved for its neighborhood.
Income Approach
Appraisal method. Used with income properties - rental, commercial, investment. Analyses net operating income (gross income minus operating expenses) compared to similar properties nearby.
Indirect Cost
Real estate taxes Fees - engineering, architecture, appraising, accounting, legal Insurance during construction Marketing Interest and expenses on loans
Insured Value
The amount a property can be insured for - typically structure only.
Investment Value
Highest price that investors would pay for a property.
Location/Situs
Greatest effect on property value - where is it? Is there scarcity in that neighborhood? Is that area accessible?
