Chapter 12 Valuation Process and Pricing Properties

Question 1

What is an Appraisal?

Answer 1

An unbiased estimate of the nature, quality,value or utility based on factual data of an interest in or aspect of identified real estate and related personality as of a certain date.

Question 2

What is Valuation?

Answer 2

The study of market value.

Question 3

What are the 6 types of value?

Answer 3

1. Assessed value
2. Insurance value
3. Investment value
4. Market value
5. Mortgage value
6. Value in use

Question 4

Explain investment value?

Answer 4

The amount of return on a certain dollar investment that a property will produce.

Example if a investor requires a 20 percent return and the property returns 20,000 the investment value is 100k.

Question 5

What is Insured Value ?

Answer 5

The cost of replacing or reproducing the structure in case of a total loss because of an insured hazard.

Question 6

What is Value in use?

Answer 6

The value of property based on its usefulness to an owner or investor.

Changes from owner to owner

Question 7

What is assessed value ?

Answer 7

Normally a percentage of market value such as 80 percent.

Question 8

I’m New York what is the tax rate applied to assessed value to compute the property tax?

Answer 8

100% in many tax jurisdictions

Question 9

Assessed value is calculated by using what formula?

Answer 9

Market value x assessment rate = assessed value

Question 10

What is Mortgagee Value?

Answer 10

Whatever the lender believes the property will bring at a foreclosure sale or subsequent resale.

Question 11

What is Market Value?

Answer 11

The most probable price as of a specific date , in cash or in other terms for which the property should be sold after reasonable exposure in a competitive market.

Question 12

What is Evaluation?

Answer 12

A study of the nature ,quality or utility of certain property interest in which a value estimate I not necessarily required.
( how would you use this property to make money)

Question 13

Evaluation studies include what following types?

Answer 13

1. Market studies ( can property be effectively presented and marketed in its condition)
2. Feasibility studies ( site development cost,environmental factors, cost of available financing such as interest rates, tax considerations, rates of returns on similar investments and community benefits).
3. Supply and demand studies
4. Land utilization studies (land is evaluated for its best land use)

Question 14

Explain Price ?

Answer 14

The amount a particular purchaser agrees to pay and a particular seller agrees to accept under the circumstances surrounding the transaction.

Question 15

Explain Cost?

Answer 15

The total dollar expenditure for labor,materials,legal services ext.

Question 16

What are the two types of cost?

Answer 16

1. Direct cost - also know as a hard cost and includes labor and materials
2. Indirect cost - also know as a soft cost which includes architectural and engineering fees , attorneys and appraiser cost ext.

Question 17

What is a Comparative Market Analysts (CMA)?

Answer 17

An analysis of the competition in the marketplace that a property will face upon sale attempts.

Question 18

Is a CMA an appraisal?

Answer 18

No

Question 19

An appraisal uses collected data and applies three approaches to value which are?

Answer 19

1. Sales comparison
2. Cost
3. Income

Question 20

Who does a CMA ?

Answer 20

Real estate agents

Question 21

What is a Residential Market Analysis ?

Answer 21

A study of factors effecting a property’s value.( views the property in light of conditions in the marketplace)

Question 22

What are some things you will see on a CMA?

Answer 22

1. Recently sold properties
2. Current Competing properties
3. Recently expired properties ( show homes priced to high and don’t sell)
4. Buyer appeal ( properties visual aspects )
5. Market position ( the number of similar properties available in the same price range)
6. Assets and drawbacks ( tolerable traffic or desirable location)
7. Area market conditions (holidays weather and the start of school year)
8. Recommended terms ( the financing terms , will property be available immediately , does the buyer have a property to sell)
9. Market value range ( when a price range for a property is determined)

Question 23

Explain the highest and best use?

Answer 23

The use of land aimed at preserving its usefulness providing the greatest income and resulting in the highest land value.

Question 24

To be considered as the lands highest and best use any potential use must pass certain test which are?

Answer 24

1. Is it legally allowable cannot violate any laws.
2. Is it Physically possible
3. Maximally productive ( a property must only have one highest and best use that will allow the maximum use of the property)
4. Financially feasible ( use must produce enough dollars to justify and pay for the construction cost and produce profit)

Question 25

What is the combining of several parcels called?

Answer 25

Plottage

Question 26

Explain sales approach?

Answer 26

Compares subject to similar properties and make appropriate adjustments.

Question 27

Explain Cost Approach?

Answer 27

Theoretically rebuilds the structure new and then adjust to its present condition.

Question 28

Explain Income Approach ?

Answer 28

Applies a capitalization formula to forecast income or income produced(rent).

Question 29

What is the primary approach for estimating the value of single family owner occupied dwelling and vacant land?

Answer 29

Sales comparison approach

Question 30

What is the main method for estimating the value of properties that have few if any comparable and are not income producing?

Answer 30

Cost Approach ( relies heavily on depreciation)

Question 31

What are types of structures appraised by the cost approach method ?

Answer 31

Schools, hospitals , and government office building.

Question 32

What is deprecation?

Answer 32

A loss in value for any cause.

Question 33

What does depreciation result from?

Answer 33

Physical obsolescence
Functional obsolescence
Economical obsolescence

Question 34

What does Functional obsolescence refer too?

Answer 34

Flawed or faulty property made inferior because of technical advances.(how one can use property)

Example ( outdated equipment exposed airings or plumbing)

Question 35

Explain physical obsolescence?

Answer 35

Wear and tear and lack of maintenance

Question 36

What does Economic obsolescence refer too?

Answer 36

Property that is outdated to for external environmental reasons or locational reasons.

Question 37

Explain external obsolescence?

Answer 37

Change in surrounding land use such as zoning, increased traffic, air pollution.

Question 38

Explain income approach?

Answer 38

The primary method used to estimate the present value of properties that produce income.

Question 39

What is an Income approach also called?

Answer 39

Appraisal by capitalization.

Question 40

In an Income approach how is the value of the property estimated ?

Answer 40

By converting the net annual income into an indication of present value by application of capitalization rate.

Question 41

What is the capitalization rate?

Answer 41

The rate that other investors are achieving on like investments.

Question 42

What is The Uniform Residential Appraisal Report (URAR)?

Answer 42

The most common appraisal for used by appraisers.