Chapter 13

Question 1

A Provisional Broker can provide a BPO

Answer 1

yes

Question 2

Appraisers

Question 3

What is an Appraisal

Answer 3

An opinion of value by a licensed appraiser on a specific date

Question 4

Elements of Value (DUST)

All of these would affect value of a property

Answer 4

1. Demand
2. Utility
3. Scarcity
4. Transferability

Question 5

Forces that influence value

Answer 5

1. Environment
2. Government
3. Economy
4. Social Trends

Question 6

Economic Principles of Value

Read the chapter in the text book for this. Pay attention to italisized words.

Answer 6

1. Highest and Best Use (every property only has **one **highest and best use at one time AND it is the most profitable use of the property at that time)
2. Principle of Substitution. Items of similar quality are determoined by lowest price
3. Supply and Demand: More supply lowers value. Higher supply, increases value.
4. Principle of Conformity: Maximun value is maintained with similarity. Basis for CCR.
5. Principles of Progression & Regression: Presence of greater value properties with increase value (progression); Presence if lesser valued properties will decrease the value (regression)
6. Principle of Anticipation: future benefits & detriments will affect property value
7. Contribution: additions to home, updates, etc.
8. Principle of Competition: Profits attactt competition, which lowers profits
9. Principle of Change: neighborhoods goig through change
10. Principle of Assemblage: bringing together multiple properties to increse value of land
11. Principle of Plottage: Division of larger pieces of land into smaller pieces

Question 7

Approaches to Value (3)

Answer 7

Sales Comparision: Market data
Cost
Income: income producing properties (rentals, etc.)

Question 8

Sales Comparision Approach

Answer 8

• Most often used in residental and land sales
• Based on similar properties (what has recently been SOLD)
• Will need to make adjustments for differences in “like”properties

we will be tested on how to make adjustments

Question 9

Subject Property

Answer 9

Prooperty being appriased

Question 10

Comparable Properties (aka “comps”)

Answer 10

Similar propertues that have been sold in the marketplace (within the last 6 months and nearby)

Question 11

Sales Comparision Approach

Answer 11

1. Data collection & analysis
2. Selection of 3-4 comps
3. Adjustments to sale prices of comps
4. Reconciliation and determine of value estimates

Question 12

Inferior Property

Adjusting the Comparable Sales

Answer 12

If comparable propety has LESS value you would ADD

Question 13

Superior Property

Answer 13

If comparable house has MORE value you would SUBTRACT

Question 14

Cost Approach

Answer 14

When no comps are avaliable

Only approach using depreciation.
Unique poperties, non-income producing, new construction

Question 15

Cost Approach Process

Answer 15

• Estimate the value of the building
• Esimate the value of the land
• ADD together = cost approach value

look at the value land by itself (land never depreciates)
look at the value of the depreciated building
ADD together = cost approach value

Question 16

Reproduction Cost

Seldomly used

Answer 16

An EXACT replica

Question 17

Square Foot Method

Most common

Answer 17

Cost per square foot
Ex: 8,000 sq ft x $375 (cost per sq ft) = $3,000,000

Dont forget depretiation

Question 18

Unit in Place

Answer 18

Breaks down the cost of materials to rebuild

Question 19

Quantity Survey Method

wont be tested

Answer 19

Total materials + labor to rebuild

Question 20

Depretiation Methods

Answer 20

1. Age/Life

Question 21

Age/Life

Answer 21

1. Physical Life
2. Economic Life
3. Effective Age

Question 22

Age/Life Method for Depreciation

Not on exam

Answer 22

Effective Age
**(DIVIDED BY) **
Economic LIfe
= % of Depreciation

Question 23

Breakdown Method of Depretiation

Answer 23

**1. Physical Deterioration
2. Functional Obsolescence (poor or outdated design - INSIDE of the house)
3. Economic Obsolesence (outside of the house - we cannot control aka train tracks)

Question 24

Curable vs. Incurable Depreciation

Answer 24

Curable: Easily remedied & economically feasible
Incurable: not capable of being remedied or too expensive

Question 25

The Income Approach

To determine the value of a property

Answer 25

Used for income producing properties or investment properties

Question 26

CAP Rate

Answer 26

The way at looking at the rate of return to determin value

Question 27

Capitalization formula

Answer 27

1. Net operating income (net - after expenses) +
2. Knowledge of similar sales =
3. CAP rate

Question 28

Cash Flow Analysis Calculation
(How to arrive at NOI)

Answer 28

Potential Gross Income
* - Vacancy
* - Collection losses =
* Effective gross income
* - Operating expenses =
* Net Operating Income (NOI)

you can then plug into the CAP rate formula and determine ROI

you do not include your P&I in any of these numbers

Question 29

How to Arrive at NOI

Answer 29

Potential Gross Income
* - Vacancy
* - Collection losses =
* Effective gross income
* - Operating expenses =
* Net Operating Income (NOI)

Question 30

Gross Rent Multipliers (GRM)

smaller rental property

Answer 30

Sales price (divided by) monthly rental income = GRM

Take GRM and put back into formula (see circle chart)

Question 31

Reconciliation

AKA Opinion
For residentail the CAM method is used

Answer 31

Process of bringing together different appraches to arrive at ONE final opinion of value
1. Comparable Approach Method
2. Cost Approach Method
3. Income Approach Method