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Real Estate State Test > Chapter 16 > Flashcards

Chapter 16 Flashcards

1
Q

What act mandated states to license and certify appraisers as well as brought the appraisal industry under federal oversight.

A

Financial institution Reform Recovery and Enforcement act.

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2
Q

FIRREA recognizes the ________ _________ as the source for promotion of professional standards and appraiser qualification .

A

Appraiser foundation

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3
Q

The appraiser foundation accomplishes it’s goals through the work of what two independent boards?

A

Appraiser qualification board(AQB)- establishes minimum criteria for state-certified appraisers and endorses uniform examination for certification. The AQB establishes guidelines for the supervision of registered trainees, including education of new supervisors
Appraisal Standards Board(ASB)- sets minimum standards for appraisals performed for federally related transactions. They develop, interpret, and amends the Uniform Standards of Professional Appraisal Practice (USPAP) on behalf of the appraisal industry.

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4
Q

The appraisal Subcommittee(ASC) maintains what?

A

A national registry of state-certified and licensed appraisers who are eligible to perform appraisals in federally related transactions

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5
Q

What are the 2 categories of state-certified appraisers

A

Certified residential appraiser- may issue appraisal reports for residential real property of one to four residential units.
Certified general appraiser- may issue appraisal reports for any type of real property.

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6
Q

Explain a federally related transaction.

A

Any real-estate financial transaction that a federal financial institution regulatory agency has either contracted for, regulates, or requires the service of an appraiser.

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7
Q

All appraisals for federally related transactions must be __ _______ and conform to ______

A

In writing, USPAP

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8
Q

FIRREA requires certified appraisals for all financial transactions involving

A

Fannie Mae, Freddie Mac FHA and VA

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9
Q

FIRREA recognizes the _____ as the standard for valuing real property. _____ is a set of guidelines to fallow when providing appraisal services.

A

USPAP, USPAP - uniform standard of professional appraisal practice.

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10
Q

An appraiser must perform assignments with impartiality, objectivity, and independence, without _______ interest.

A

Personal

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11
Q

True or false? Real estate licensees may conduct appraisals of real property that do not require a state certified or licensed appraiser.

A

True

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12
Q

Licensees who intend to provide appraisal services must be familiar with the ______ standards. Failure to do so may subject a real estate licensee to discipline.

A

Uspap

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13
Q

Real estate licensees who are not state state-certified appraiser are cautioned to get a statement in writing from the client that states what?

A

That the appraisal is not associated with a federally related transaction and doesn’t the services of a state certified appraiser

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14
Q

Real estate sales associates typically prepare ___ to establish listings or offering prices.

A

CMAs (comparative market analyses)

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15
Q

True or false? Licensees who prepare CMA’s (comparative market analysis) is required to comply with the USPAP (uniform standards of professional Appraisal Practice)

A

False

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16
Q

True or false? Real estate licensees are allowed to prepare and charge for BPOs provided the brokers price opinion is NOT labeled as an appraisal.

A

True

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17
Q

True or false? A real estate licensee who perform appraisal services must abide by the USPAP.

A

True

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18
Q

True or false? Real estate licensees who perform a BPO is not required to comply with USPAP

A

True

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19
Q

Explain cost price and value.

A

Cost-expenditure(funds spent) to create an improvement including material, labor, and land.
Price- the amount paid in a particular transaction(contract price)
Value- the Worth of something between many market participants.

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20
Q

List 6 types of value an appraiser may be hired to estimate

A

Assessed value- used as a basis for property taxation
Insurance value- amount of $ required to replace a structure after catastrophe
Investment value- price an i investor would pay
Liquidation value- amount a property would most likely bring in a forced or rapid sale
Going-concern value- value of an income producing business/property characterized by significant operating history
Salvage value- amount improvements can be sold for at the end of a structure’s life

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21
Q

Explain market value-

A

the most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale under certain guidelines published by Fannie Mae and Freddie Mac

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22
Q

What are the 4 characteristics of value

A

Demand, utility, scarcity, transferability.

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23
Q

What creates effective demand

A

The need or desire combined with the economic means

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24
Q

Explain utility

A

Usefulness, ability to provide useful service and benefits to owner/ tenant

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25
Q

_______ __ __________ states that the maximum value of a property tends to be set by the cost of acquiring an equally desirable substitute property through purchase or construction.

A

Principle of substitution

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26
Q

The most profitable single use of a property is the property’s ______and best use.

A

Highest

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27
Q

The three criteria determining a property’s highest and best use are?

A

Legally permissible, physically possible, financially feasible.

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28
Q

Returns refer to what?

A

Cost of an improvement and the value it adds to the property.

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29
Q

Overimprovements occur when?

A

When an owner invests more money in a structure than the owner can reasonably expect to recapture

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30
Q

Explain appraisal principle of conformity

A

Based on the concept the more a property is in harmony with its surrounding properties, the greater the contributory value. (Ex. In A single family residential neighborhood, building design, construction, size and age should all be similar.

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31
Q

Explain assemblage and plottage

A

Combining of 2 properties into 1 property to increase value. Plottage is the actual added value as a result of assemblage.

32
Q

Explain progression and regression.

A

The principle that the value of a superior or inferior property is enhanced or decreased by its association with inferior or superior property’s

33
Q

The three approaches to value are

A

Sales comparison approach(comparable sales method)
Cost approach(cost method)
Income approach(income method)

34
Q

When are the three approaches to value most relevant

A

Cost approach- newly constructed homes, special purpose property(ex. Hospital) and cross checking the other two approaches
Sales comparison- vacant lots and single family home neighborhoods
Income approach- income producing property

35
Q

Explain the adjustment process

A

Make adjustments as necessary based on time of sale, market conditions(transactional differences) and location ect.(property differences)
If a comparable property has a feature that is inferior, you make an upward adjustment(add value). If the comparable property feature is superior, you adjust downward(decrease value)

36
Q

Adjustments to property value are based on what?

A

Financing terms, conditions of sale, market conditions, square footage, landscaping.

37
Q

The process of analyzing and effectively weighing the various comps is called a ___________

A

Reconciliation

38
Q

Explain reconciliation within the adjustment process

A

The amount of weight each comparable property is given in relevance to how similar the comp property is to the subject. A very similar property may be weighted 60 percent and a property less similar but still somewhat may be weighted 40 percent

39
Q

Give an example of reconciliation to find indicated value

A

Comp 1=134000
Comp 2=150000
Comp 1 was more similar to the subject property so it will be weighted at your discretion 70 percent
Multiply 134000 by .70
Multiply 150000 by .30 to equal 100%
Add the values together
Indicated value=

40
Q

Explain the process for value information a vacant lot

A

Compare sales of other lots to the subject lot. Determine price per square foot of each lot. Determine what percentage to weight each property’s price per square foot to equal 100%. Add them up to find the price per square foot of the subject lot. Multiply it by the number of square feet of the subject property.

41
Q

Do math problems

A

Page 373

42
Q

What are the 4 steps to the cost approach.

A

Estimate reproduction cost, subtract accrued depreciation, estimate value of land, add land value to the reproduction cost(cost to rebuild).

43
Q

Formula; cost depreciation approach

A

Reproduction cost of the structure -accrued depreciation= depreciated value of the structure+ estimated value of the site= indicated value of the property.

44
Q

Explain curable and incurable depreciation

A

Curable- added structure or repair to a building where the owner can get their money back in added value.
Incurable- owners are unable to get their money back in added value.

45
Q

What are the three major causes of depreciation in a structure

A

Physical deterioration-ordinary wear and tear.:example- deterioration, battered roof shingles
Functional obsolescence- Anything that is inferior because of operational inadequacies, poor design, or change in preference by consumers.:-example poor traffic pattern in hallways, few bathrooms, inadequate insolation
External obsolescence- loss in value due to influence originating outside the boundaries of the property.; example- adjacent expressway, deterioration of neighborhood.

46
Q

What is not depreciated in the cost depreciation approach

A

Land

47
Q

The vast majority of residential appraisals that employ the cost depreciation approach use the ________ method to estimate the depreciation

A

Age-life

48
Q

Define economic life

A

Total estimated number of years that the structure is expected to contribute to the property’s value.

49
Q

What is the method for estimating effective age

A

Their is no method, it is purely up to an appraisers discretion

50
Q

Formula; Accrued Depreciation pg 376

A

Effective age/total economic life • reproduction cost new=estimated total accrued depreciation.

51
Q

Formula; Alternate Accrued Depreciation pg 376

A

Reproduction cost new/total economic life= annual depreciation•effective age= estimated total accrued depreciation

52
Q

The value of land is usually determined by the ______ _______ approach

A

Sales comparison

53
Q

What is the cost approach used to determine

A

The estimated value of a property site and its site improvements

54
Q

What is the objective of the income approach

A

To measure a flow of income projected into the future.

55
Q

Explain PGI (potential gross incom)

A

Total income from a property if it were fully rented and no losses incurred

56
Q

Explain EGI (effective gross income)

A

When any vacancy’s and collection losses are deducted from pgi and any other income sources (example laundry, vending machine, parking ect.) is added.

57
Q

Formula: EGI

A

PGI-vacancy and collection losses+other income= EGI

58
Q

Explain NOI (Net operating income)

A

Income remaining after subtracting all relevant operating expenses from EGI

59
Q

The 3 groups of Operating expenses are what?

A

Fixed expenses that don’t change such as insurance or property tax, variable expenses that fluctuate based on occupancy such as utilities management supplies and garbage collection, and reserve for replacement

60
Q

Formula: NOI

A

EGI-operating expenses=NOI

61
Q

True or false? Mortgage expenses, depreciation, income taxes, capital improvements, personal and business expenses that do not contribute to actual operation of the property are business expenses, not operating expenses

A

True

62
Q

Formula: Overall Capitalization Rate (OAR)

A

NOI/value(sale price)= OAR

63
Q

Math page 378, 379, 380

A
64
Q

Capitalizatio rate• value=______
NOI/ value(sale price)=_________ _____
NOI/ capitalization rate=______

A

NOI
Capitalization rate
Value(sale price)

65
Q

Investment value is subjective and based on what? what? How is it calculated

A

Subjective and based on personal criteria, and it is calculated by dividing net annual income by the investors minimum rate of return or specified capitalization rate

66
Q

Value decreases when rate (1)________ and NOI is (2)__________ or when expenses(3) _________ (NOI goes down) rate is (4)_______

Value increases when expenses (5)________ (NOI goes up) rate is (6)_________
Or when rate(7)_______ and expenses and NOI is (8)________

A

1increases
2unchanged
3increase
4unchanged
5decrease
6unchanged
7decreases
8unxhanged

67
Q

Math page 381

A
68
Q

Reconciliation is what?

A

The process of evaluating and weighting each value indication from the three approaches to value.

69
Q

How is the process of reconciliation performed? Give an example

A

Give a weighted value of the indicated value gathered from the three approaches(0-100%). Multiply each indicated value by its weighted value and add them together.

Sales comparison 160000 55%
Cost approach 155000 35%
Income approach150000 10%
Add the values

70
Q

Formula: GRM (Gross Rent Multiplier)

A

Sale price/ gross monthly rent= gross rent multiplier (GRM)

71
Q

GRM applies to _____ income only

A

Rental

72
Q

Formula: Estimated market Value

A

Monthly rent • market area GRM

73
Q

Gross income multiplier is used with ____ income-producing property

A

Small

74
Q

Formula: GRM (Gross Rent multiplier)
Formula: GIM (gross income multiplier)

A

GRM: sale price / gross monthly rent= GRM

GIM: Sale price/ gross annual income= GIM

Gross annual income • market GIM= value

75
Q

Math pg 384 382

A
76
Q

Comparative Market Analysis (CMA) typically presents information concerning three major categories of property’s

A

Recently sold
On the market
Recent expired listing

77
Q

It is important that all properties used in the CMA be similar to the subject property in _____ _____ ________ and ________

A

Size, age, amenities, and locations

Real Estate State Test (18 decks)

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