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Real Estate > Chapter 15 - Estimating Real Property Value > Flashcards

Chapter 15 - Estimating Real Property Value Flashcards

1
Q

Active real estate licensees are allowed to perform a _______________ for the purpose of obtaining a listing or a prospective sale.

A

Comparative market analysis (CMA)

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2
Q

What is a federally related transaction?

A

Any real estate-related financial transaction that a federal financial institutions regulatory agency has either contracted for, or regulates, and requires the services of an appraiser

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3
Q

What are the types of values that an appraiser may be hired to estimate?

A 
Assessed value
Insurance value
Investment value
Liquidation value
Going-concern value
Salvage value
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4
Q

What is assessed value?

A

The value used as a basis for property taxation

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5
Q

What is insurance value?

A

An estimate of the amount of money required to replace a structure in the event of some catastrophic event such as fire

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6
Q

What is investment value?

A

The price an investor would pay, given his or her own financing requirements and income tax situation

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7
Q

What is liquidation value?

A

The value associated with a rapid sale; the amount of dollars a property should bring in a foreclosure sale, for example

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8
Q

What is going-concern value?

A

The value of an income-producing property characterized by a significant operating history

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9
Q

What is salvage value?

A

The estimated amount for which improvements can be sold at the end of a structure’s useful life

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10
Q

How is value determined?

A

By a good or service’s ability to command other goods or services in exchange

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11
Q

What is price?

A

The amount of money (or its equivalent) for which a good is actually sold

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12
Q

What is cost?

A

The total expenditure required to bring a new improvement into existence plus the cost of land

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13
Q

What is an overimprovement?

A

Occurs when an owner invests more money in a structure that he may reasonably expect to recapture

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14
Q

What are the for traits of value?

A

Demand
Utility (useful)
Scarcity
Transferability (without ability to sell it, it has no value)

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15
Q

The most profitable use to which a property may be put is the property’s:

A

Highest and best use

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16
Q

A property’s highest and best use must be:

A 
Legally permissible (zoning)
Physically possible (soil type, site's shape, size, and slope)
Financially feasible (income generated considering cost of improvements)
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17
Q

What are the three approaches to estimating real property value?

A
  1. Sales comparison approach (comparable sales method)
  2. Cost-depreciation approach (cost method)
  3. Income capitalization approach (income method)
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18
Q

What is the principle of substitution?

A

The basis for all three approaches to market value
Means that a prudent buyer or investor will pay no more for a property than the cost of acquiring, through purchase or construction, an equally desirable alternative property

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19
Q

What is the sales comparison approach?

A

Based on the theory that a knowledgeable purchaser will pay no more for a property than the cost of acquiring an equally acceptable substitute property

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20
Q

Because time can affect property values, the sales used for comparison purposes must meet two qualifications:

A
  1. They must have occurred recently in the same market area where the subject property is located
  2. The comparable properties selected must be similar to the subject property
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21
Q

What is the cost-depreciation approach?

A

Based on the theory that a knowledgeable purchaser will pay not more for a property than the cost of acquiring a similar site and constructing an acceptable substitute structure

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22
Q

What are the four steps in the cost-depreciation approach?

A
  1. Estimate the current reproduction (or replacement) cost of the improvements as of the appraisal date
  2. Estimate the amount of depreciation from all causes (physical deterioration, functional obsolescence, and external obsolescence) and deduct it from the reproduction (or replacement) cost
  3. Estimate the value of the site and nonstructural site improvements, assuming the site is vacant and will be put to its highest and best use
  4. Add the estimated value of the site, including site improvements, to the depreciated structure value
23
Q

What is the income capitalization approach?

A

The object is to measure the flow of income projected into the future
Develops an estimated market value based on the present worth of future income from the subject property

24
Q

What is potential gross income?

A

Total annual income a property would produce if it were fully rented and no collection losses were incurred

25
Q

What is effective gross income?

A

The potential gross income minus vacancy and collection losses

26
Q

What is net operating income?

A

Income remaining after subtracting all relevant operating expenses from effective gross income

27
Q

What is the formula to find the net operating income?

A

Potential gross income (PGI)) - Vacancy and collection losses + Other income (laundry room, vending machine) = Effective gross income (EGI)
EGI - Operating expenses (fixed, variable) = NOI

28
Q

Income =

A

Rate of return x value

29
Q

What is assemblage?

A

The combining of two or more adjoining properties into one tract; the process of consolidating properties

30
Q

What is plottage?

A

The added value as a result of assembling two or more properties into one large parcel

31
Q

What is situs?

A

Refers to people’s preferences, both physical and economic, for a certain area owing to factors such as weather, job opportunities, and transportation facilities
Site you chose to live and work and why you chose it

32
Q

The total expenditure required to bring a new improvement into existence is referred to as:

A

Cost

33
Q

The approach to estimating value that is referred to as “the real estate market speaking through past sales” because it utilizes actual sales transactions is the:

A

Sales comparison method

34
Q

When more money is invested in a building than can reasonably be expected to be recaptured, it is referred to as:

A

Overimprovement

35
Q

The approach to value most likely to be relevant for appraising a community college is the:

A

Cost-depreciation approach

36
Q

In the income capitalization approach, value equals:

A

Net operating income / an appropriate capitalization rate

37
Q

In the comparable sales approach:

A

Adjustments are made to the comparable properties

38
Q

When applying the cost-depreciation approach, what is not subject to depreciation?

A

Land

39
Q

When applying the cost-depreciation approach, what is subject to depreciation?

A

A poor traffic pattern in a home
New solid oak wood cabinets and marble tile floors in a neighborhood of $80,000 homes
Older site improvements

40
Q

A small income-producing property has a projected effective gross income of $48,000. Expenses are estimated at 20% of effective gross income. An appraiser has determined that an appropriate capitalization rate, based on property type and competing properties, is 9%. The estimated market value of this property (rounded up to the nearest dollar) is:

A 
$426,667
PGI               48,000
- V&C                - 0
\+ Add. Inc.       + 0
= EGI          = 48,000
- Exp.                - (48,000 x .2)
= NOI          = 38,400

I 38,400
/ R / .09
= V 426,666.667

41
Q

Analyzing the sale price and income of comparable investment properties (NOI / sale price) is a common way of determining the:

A

Overall capitalization rate

42
Q

Real estate investment can be considered to be:

A

A relatively long term investment

43
Q

Karen has always wanted a home near the ocean. She recently received an inheritance that would help her purchase the house she’s always wanted down the street. This is an example of:

A

Demand

44
Q

A builder is looking to develop an area of several acres. Concrete in the area is hard to get due to a large complex being built down the street. He is being affected by:

A

Supply

45
Q

Demand may be influenced by:

A

The ability of a buyer to get a loan

46
Q

Key indicators of a change in the market could be:

A

A change in the sales volume

47
Q

A seller’s market occurs when:

A

Not enough inventory is available for buyers

48
Q

The most important understanding of the vacancy rate is:

A

To indicate how much movement there is in the market

49
Q

What is not a demand factor?

A

Availability of skilled workers

50
Q

The principle of property being nonhomogeneous means:

A

No two properties are the same

51
Q

A large factory closed in the area. Many workers lost their jobs as a result. This will probably result in:

A

A buyer’s market

52
Q

Government interference influences the real estate market. What is included in government interference?

A 
PETE
Police power
Escheat
Taxation
Eminent domain
53
Q

What is a seller’s market?

A

When there are too many buyers are too little property

54
Q

What is a buyer’s market?

A

When there are too many homes and not as many buyers

Real Estate (20 decks)

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