Chapter 15: Application Analysis - The Property Flashcards
List the different purposes for which an appraisal might be reqiured
- Insurance value: The cost to rebuild the home in case of damage (fire)
- Taxation purposes: A value so that the municipality can apply its property tax rate
- Investment value: The price that a real estate investor would pay for a property based on his or her preferred rate of return
- Selling price: The amount the property can obtain if sold
- Future price: Future value of the property under construction
- Expropriation value: The value of a property being expropriated by the Crown
Mortgage Financing: Market value of a property for a Lender to decide on the appropriate loan amount for mortgage financing.
What is the role of the appraiser in the appraisal process?
The appraiser is an accredited individual who completes the appraisal report.
What organizations award designations to appraisers?
Appraisal Insititute of Canada (AIC)
Canadian National Associated of Real Estate Appraisers (CNAREA)
Ontario Real Estate Association and the Real Estate Insitute of Canada
What are the different designations that an appraiser may have?
The AACI, P.App, CRA, DAR, DAC, CMAR, CAR, MVA or FRI.
How does the market value differ from the price for which a property may be sold?
Price is what may be paid for a property while the market value is the Amount in Canadian funds, for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing, where the buyer and selling have each acted knowledgable, prudently and without pressure.
Discuss the three approaches to calculating the market value of a property and describe the most relevant approach for mortgage financing.
Income approach: Typically used for commercial income-producing properties, using the property’s income to determine the market value.
Cost approach: uses the cost of rebuilding the property less depreciation plus the value of the property. Widely used to confirm the value determined by the direct comparison approach as well as being used to determine the replacement value of a building for insurance purposes.
Direct Comparision Approach: This approach uses the theory of substitution, comparing similar properties that have recently sold to the property being appraised. It is the most appropriate for mortgage financing and is therefore relied heavily upon in the appraisal report.
Explain how adjustments are made in the direct comparison approach.
- if the comparable characteristic is superior to the subject, subtract from the comparables property’s value.
- if the comparable characteristic is inferior to the subject, add to the comparable property’s value.
Discuss the pros and cons of AVM
AVMs can provide quick, basic property values, however, they are prone to producing values that may or may not actually be representative of the subject property since an AVM cannot make adjusts for the physical condition of the property.
What is the most detailed type of appraisal report and how does it differ from the other two types of appraisal reports?
Considered to offer the most information and therefore the highest level of protection for the Lender, the Full Appraisal is the appraisal of choice for Lenders who rely heavily on the property as security and less on the personal covenant of the Borrower (private + subprime).