Chapter 15 - Application Analysis – The Property

Question 1

List the different purposes for which an appraisal might be required (7)

Answer 1

The market value of a property for a Lender to decide on an appropriate loan amount for mortgage financing

Cost to rebuild a home/insurance

For property tax

Investment value

The amount that the property can obtain if sold (selling price)

The future value of a property under construction (future price)

The value of a property being expropriated by the Crown (expropriation value)

Question 2

What are the two types of designations the AIC rewards?

Answer 2

AACI  = Accredited Appraiser Canadian Institute
CRA = Canadian Residential Appraiser

Question 3

How does market value differ from the price for which a property may be sold?

Answer 3

Price is what may be paid for a property

Market value is the amount for which a property should exchange on the date of valuation between a buyer and seller

Question 4

What’s the Income Approach to determining market value?

Answer 4

Using a property’s income to determine market value. Typically for commercial

Question 5

What’s the Cost Approach to determining market value?

Answer 5

= The cost of rebuilding the property less depreciation plus the value of the property

Mainly used for insurance purposes

Question 6

What’s the Direct Comparison Approach to determining market value?

Answer 6

Comparing 3 similar properties that have recently sold (in the same neighborhood) to the property being appraised.

This method is the most appropriate for mortgage financing and is therefore relied heavily upon in the appraisal report

Question 7

Explain how adjustments are made in the direct comparison approach

Answer 7

If the comparable characteristic is superior to the subject, subtract from the comparable property’s value

If the comparable characteristic is inferior to the subject, add to the comparable property’s value

Question 8

Discuss the pro (1) and con (1) of AVMs

Answer 8

AVMs can provide quick, basic property values

Cons: the value might not be accurate as AVMs do not account for the physical condition of the property

Question 9

What is the most detailed type of appraisal report and how does it differ from the other two types of appraisal reports?

Answer 9

Full Appraisal report - will typically be required from sub-prime and private lenders

Outlines the most information, therefore highest level of protection for the lender